Registered Pension Plan (RPP) vs Registered Retirement Savings Plan (RRSP) in Canada

The main difference between a Registered Pension Plan (RPP) and a Registered Retirement Savings Plan (RRSP) is that an employer sets up a RPP to make pension contributions, whereas you open your own RRSP and contribute to it.

With a RPP, your employer has more control over what financial institution manages your retirement portfolio.

In contrast, you can open a RRSP in any financial institution you choose and control what investments assets are in your account.

What is a RPP?

A Registered Pension Plan (RPP), as the name suggests, is a pension plan that is registered with the Canada Revenue Agency (CRA).

Generally, an employer sets up a Registered Pension Plan to contribute savings towards your retirement.

When your employer sets up an RPP, it operates as a defined benefit pension or a defined contribution plan. 

With a defined benefit pension plan, you will receive a determined amount in retirement calculated based on your earnings and years of service.

On the other hand, with a defined contribution plan, your retirement income will depend on the performance of your retirement investment portfolio.

While a RPP is an employer-sponsored plan, you can also contribute to your RPP.

Some employers match employees’ contributions, providing retirement contributions as an employment benefit.

Pros of a RPP

  • Your employer can match your contributions and also contribute to an RPP.
  • Your retirement savings grow and are tax-deferred.

Cons of a RPP

  • You cannot choose the financial institution that manages your retirement savings.
  • The money in an RPP is locked-in until retirement.
  • Your employer’s contributions may need to be vested in order to receive them, meaning you may lose them if you leave your employer.

What is a RRSP?

A Registered Retirement Savings Plan is a plan you can contribute to for retirement purposes.

The RRSP is registered with the CRA and allows you to save and grow your money tax-free.

However, when you withdraw from your RRSP, you must pay taxes to the CRA.

Through an RRSP, you can make contributions until the end of the year you turn 71.

When you save and invest through your RRSP, you can claim tax deductions for your contributions. 

There are different variations of RRSPs.

The Group RRSP allows employees to contribute to a group plan for cost-effective administrative and management costs.

You can also contribute to a Spousal RRSP if your spouse or common-law partner has contribution room, and you get to claim the tax deductions. 

Pros of a RRSP

  • Your retirement savings grow and are tax-deferred.
  • You can contribute to a spousal RRSP.
  • You can borrow from your RRSP to buy your first home through the Home Buyer’s Plan (HBP).
  • You can claim an RRSP deduction when filing your income tax and benefits return. 

Cons of a RRSP

  • Employers are not mandated to contribute to your RRSP.
  • Contributions are with after-tax dollars.
Couple researching RPP and RRSP options

Considerations When Planning for Retirement

When saving for retirement, you should consider the pros and cons of the retirement plans you choose to contribute to as well as significant differences between them.

Differences Between a RPP and RRSP

  • Your employer sets up a RPP and decides which financial institution manages your retirement savings. You can open an RRSP with a provider of your choice and have a say in which investment assets are in your portfolio.
  • Your contributions in a RPP are usually locked-in until retirement, while you can access the funds in your RRSP subject to taxes on withdrawal.
  • Contributions to the RPP are usually directly from payroll using pre-tax dollars, but you use after-tax income when contributing to your RRSP.

Similarities Between a RPP and RRSP

  • You can use a RPP and RRSP to save and invest for retirement.
  • The RPP and RRSP are registered with the Canada Revenue Agency.
  • Both accounts are tax-deferred.
  • When you withdraw from your RPP and RRSP, you pay taxes on the withdrawal amount.

Frequently Asked Questions

  • Does RPP count toward RRSP?
  • Can I withdraw from RPP?
  • Is RPP tax-deductible in Canada?

Adeola is a Chartered Accountant and business finance professional. She is very passionate about financial literacy and education. When she’s not crunching numbers, she loves spending time with family.