What is a PRPP?
A Pooled Registered Pension Plan (PRPP) is a type of registered retirement savings plan that employees and self-employed individuals can use to save for retirement in Canada.
A PRPP is similar to a defined contribution pension plan that employers provide.
However, while employers must contribute to a defined contribution plan for employees, they are voluntary to contribute to a PRPP.
If you work for an employer and do not have a workplace pension plan or are self-employed, you can save for retirement using the Pooled Registered Pension Plan, also known as a PRPP.
You need a social insurance number (SIN) to contribute to a PRPP.
The CRA allows you to contribute to a Pooled Registered Pension Plan until the end of the year you turn 71 years old.
Similar to RRSP contribution room, there is a limit to how much you can contribute to a PRPP in a year.
The Canada Revenue Agency (CRA) uses your contributions to a Pooled Registered Pension Plan, and any other registered retirement savings plan to calculate your Pooled Registered Pension Plan annual contribution limit.
The CRA determines your PRPP contribution room the same way as the RRSP contribution room.
Your PRPP contribution room in any given year is:
Your unused deduction room at the end of the preceding year
Plus: The lesser of:
18% of your earned income in the previous year
Annual RRSP limit
That exceeds either your pension adjustments (PA) or a prescribed amount
Plus: your pension adjustments reversal (PAR)
Minus: your net past service pension adjustment (PSPA)
If your contributions to your combined registered retirement savings plans exceed your contribution room, you may be required to pay a 1 percent tax on the excess amount for every month it remains in your account.
The CRA gives wiggle room for excess contribution amounts up to $2,000, after which the tax penalty applies.
When you contribute to a PRPP, you can claim tax deductions for your contribution amount.
However, the tax deduction you claim cannot be more than the difference between your RRSP deduction limit and your employer’s contributions to the PRPP.
This means you cannot deduct your employer’s contributions to your Pooled Registered Pension Plan on your income tax and benefit return.
It is also important to note that with a Pooled Registered Pension Plan, you cannot contribute to your spouse’s or common-law partner’s PRPP.
Unlike a regular registered retirement savings plan, in most jurisdictions, the funds in your PRPP are locked-in.
You have limitations on withdrawing your contributions in a Pooled Registered Pension Plan until you retire.
Certain life events such as the breakdown of the marriage or common-law partnership can provide access to funds in a PRPP.
If you have another pooled retirement pension plan, you can make a direct transfer between both plans.
You can also transfer your PRPP contributions to your registered pension plan (RPP), specified pension plan (SPP), registered retirement savings plan (RRSP), or registered retirement income fund (RRIF).
PRPP vs RPP
A registered pension plan (RPP) is a workplace pension plan that your employer sets up and registers with the CRA to provide retirement savings.
Through an RPP, you and your employer can contribute to the plan.
An RPP can be set up as a defined benefit pension plan where an employer determines a specified payout amount when you retire.
Alternatively, an RPP can be a defined contribution plan where the amount you receive in retirement depends on your contributions and how well your investments in the plan perform over time.
If an employer does not provide a workplace pension, you can save for your retirement through the Pooled Registered Pension Plan that either you or your employer sets up.
A PRPP works like a defined contribution plan.
While an RPP is a specific employer-sponsored plan, a PRPP can have members from different employers.
A Pooled Registered Pension Plan allows members to benefit from cost-effective administrative fees while taking advantage of investment gains.
Frequently Asked Questions
- Is PRPP the same as RRSP?
A Pooled Registered Pension Plan is not the same as a registered retirement savings plan. While they are similar, a PRPP is more of a defined contribution pension plan that is locked in until you retire. With an RRSP, although highly recommended not to, you can access your contribution funds at any time, subject to tax implications.
- Does an employer contribute to PRPP?
Employers can contribute to the Pooled Registered Pension Plan, however, it is voluntary, and they can choose to participate or not.