Registered Retirement Savings vs. Registered Pension: an Overview
Registered retirement savings plans (RRSP) and registered pension plans (RPP) are both retirement savings plans that are registered with the Canada Revenue Agency (CRA). RRSPs are individual retirement plans, while RPPs are plans established by companies to provide pensions to their employees. The two plans are comparable to defined-contribution savings plans and defined-benefit pension plans in the United States.
Key Takeaways
- Registered retirement savings plans (RRSP) and registered pension plans (RPP) are Canadian retirement vehicles.
- An RRSP is a retirement savings and investment account for individuals, including employees and the self-employed.
- An RPP is an employee pension plan, funded by either the employer and the employee or in some cases, just the employer.
- The two plans are similar to defined-contribution savings plans and defined-benefit pension plans that are offered in the United States.
- Money is generally deposited pre-tax, and investment income grows tax-free, but tax is paid upon distribution.
Registered Retirement Savings Plan
A registered retirement savings plan is a retirement savings and investment account for employees and self-employed people in Canada. Contributions are made before taxes, but distributions are taxed at the marginal rate. If someone is taxed at a rate of 30% and they contribute $1,000 to an RRSP, the entire sum is applied to the account. In contrast, if the individual took those funds in wages, they would pay $300 in income taxes.
Individuals are allowed to contribute up to 18% of their earned income annually to their RRSP, up to an annually adjusted cap ($32,490 for the 2025 tax year and $31,560 for 2024).
You can find your maximum deduction limit on your latest notice of assessment or on Form T1028, Your RRSP Information. However, if your taxable income has changed from the previous tax year, your contribution limit has also changed.
If you have not made maximum contributions in previous years, however, you may add the value of contributions that were allowed but not made to your current year's allowance. As a result, your maximum contribution limit may be higher than $32,490.
If you contribute more than the annual allowed maximum amount, the extra contribution is considered excess. Excess contributions may be taxed at a rate of 1% per month.
Registered Pension Plan
A registered pension plan (RPP) is a trust that provides an employee with pension benefits after they retire. RPPs are registered with the Canada Revenue Agency. An RPP can be funded by an employer or an employer in conjunction with an employee. Funds are contributed to the pension for a number of years until the recipient of the pension reaches retirement age, or leaves the company.
Contributions to the plans are tax-deductible for the employee and employer. The contributions and any gains on the assets are tax-deferred and therefore taxed when themoney is withdrawn.
Taxation on RRSPs and RPPs
Contributions to both RRSPs and registered pension plans are not taxed for Canadian residents (those living abroad may face local taxes). Individuals and their employers may both contribute to RPPs, and neither's contributions are taxed.
Money earned within both RRSPs and RPPs is not subject to income or capital gains taxes as long as the funds remain in the accounts. However, earnings from both plans are taxed as income when withdrawn or paid.
Special Considerations
Maximum contributions on RPPs vary based on which type of RPP is being used. There are two types of RPPs: defined benefit RPPs and money purchase RPPs. In defined benefit plans, the pension amount is known and does not change, but the contribution amount varies. These plans do not have a yearly maximum contribution limit.
Money purchase or defined contribution plans do not have a set or predictable pension amount, but employees know how much they are expected to contribute.
