A registered pension plan (RPP) and a registered retirement savings plan (RRSP) are both designed to help Canadians save for retirement. The main difference between an RPP vs RRSP is how they’re set up and managed. With an RPP, your employer is involved. With an RRSP, it’s up to you to fund and manage your plan.
Here’s everything you need to know about what these registered plans are, how they differ, and how you can use them to save for your future.
RPP vs RRSP: What’s The Difference?
If you’re looking to invest in your retirement, an RPP and RRSP are both great options. Both plans are registered by the federal government, and both offer tax incentives. Let’s dig into the details of each type of plan.
What’s An RRSP?
A registered retirement savings plan (RRSP) is registered with the Canada Revenue Agency (CRA).
You can open an RRSP at most financial institutions, including your bank, credit union, or investment company.
You, your spouse, or your common-law partner can contribute to your RRSP. Any income you earn is generally tax-exempt until you start withdrawing the money.
RRSP contributions are also tax deductible. This means you don’t pay any tax on the money you contribute. For instance, if you contribute $3,000 to your RRSP, you can subtract this amount from your total income.
Learn more: Best RRSP Accounts In Canada
What’s The RRSP Contribution Deadline?
For the tax year 2024, the RRSP contribution deadline is March 3, 2025. Essentially, you can contribute from March 1 to December 31, 2024, and then you have sixty days into the new year to continue contributing.
You must stop contributing on December 31st of the year you turn 71. At this time, you can transfer your money to a Registered Retirement Investment Fund (RRIF) or annuity.
| Note: A year after you open your RRIF, you have to start making minimum withdrawals. This number increases as you get older. Withdrawals are considered taxable income. However, by age 71, many Canadians are retired and in a lower tax bracket, meaning they pay less taxes than during their peak earning years. |
Learn more: When Is The RRSP Contribution Deadline?
What’s The RRSP Contribution Limit?
The maximum RRSP contribution limit for each individual is 18% of your previous year’s reported income, up to a maximum of $32,490 for the 2024 tax year. Any unused contributions are carried forward to future years.
If you over-contribute to your RRSPs by more than $2,000 you generally have to pay a tax of 1% per month on excess contributions.
If you’re unsure of your contribution limit, you can log in to your CRA MyAccount where you can view and manage your personal tax information, including your RRSP limit. However, it’s importance to double check as the CRA RRSP contribution limit may not be 100% accurate.
What Are the RRSP Withdrawal Rules?
With an RRSP, you can wait until you retire to start withdrawing your money, or you can make a withdrawal before you retire. The choice is yours. However, anytime you withdraw your money, it is considered taxable income.
When you withdraw from your RRSP, your financial institution will withhold the tax. The tax rate on withdrawals depends on where you live and how much you withdraw. For instance:
- 10% (5% in Quebec) on amounts up to $5,000
- 20% (10% in Quebec) on amounts of $5,000 to $15,000
- 30% (15% in Quebec) on amounts over $15,000
If you invest in a locked-in RRSP, you aren’t allowed to withdraw your funds.
What’s An Registered Pension Plans (RPP)?
A registered pension plan (RPP) is an employer-sponsored savings plan registered with the Canada Revenue Agency (CRA). You and your employer contribute pre-tax income to the plan until you retire.
Contributions and investment earnings are tax-exempt until you withdraw your funds. Like an RRSP, Contributions are also tax deductible.
Types Of Registered Pension Plans (RPP)
There are two main types of RPPs, a defined contribution plan and a defined benefits plan. While defined benefits are mainly available in the public sector, defined contributions are mainly available in the private sector.
Defined Contribution
In a defined contribution plan, you know how much you have to pay into the plan but you don’t know how much you’ll get when you retire. Every year, you and your employer pay a percentage of your salary into your pension plan. Your maximum contribution limit is the same as your RRSP limit – 18% of your income.
The money is invested on your behalf or, in some cases, you might get to choose how the money is invested. The amount you get when you retire depends on how your investment performs.
Defined Benefit
In a defined benefits plan, you know how much you will receive when you retire. How much you get depends on a formula that can include your years of service, career average earnings, and final average earnings which are the years right before you retire.
In this plan, your employer promises to pay you a defined income when you retire. Typically, you and your employer contribute to the plan and contributions are pooled into a fund. The money is invested and managed by your employer or plan administrator. You have no say in how the money is invested.
Some plans offer an indexed pension, which increases to cover rising living expenses based on the rate of inflation.
Learn more: Defined Benefits vs Defined Contribution Pension Plans
What Is A Group RRSP?
In addition to individual RRSPs, some companies offer employer-sponsored group RRSPs. In an individual RRSP, it’s up to you to set up and manage your plan, while a group RRSP, your employer is responsible. If you opt into your group plan, your contributions are typically deducted from your paycheque.
RRSP Matching
In some group RRSPs, your employer might contribute to your RRSP through a matching program.
RRSP matching is when your employer matches your investment, up to a certain amount. For instance, if you contribute $3,000 per year to your group RRSP, your employer will match you by investing $3,000 for a total of $6,000. That’s basically $3,000 in free money.
RRSP, Group RRSP, RPP: An Overview
Here’s a look at what an individual RRSP, Group RRSP, and RPP have in common, and how they differ.
| Individual RRSP | Group RRSP | RPP | |
| Who sets it up? | You | Your employer. You decide if you want to join. | Employer |
| Who contributes? | You | You, maybe your employer. | Your employer, maybe you. |
| Tax benefits | Contributions are tax-deferred and tax-deductible | Contributions are tax-deferred and tax-deductible | Contributions are tax-deferred and tax-deductible |
| Contribution limit | Yes | Yes | Yes. Based on your income |
| When can you withdraw? | Any time | Can vary based on plan provider | 55 years or older |
Which Pension Plan Is The Best?
While the answer can vary between individuals, the defined benefits pension plan is a strong contender for a few reasons. First, since you know what your monthly pension will be, this can help you budget for your future. Second, your employer takes on the risk. No matter how the fund performs, they are responsible for paying your pension.
RRSP vs RPP: Bottom Line
If you want a stress-free retirement full of financial freedom, it’s important to start saving as soon as possible. Registered plans like the RRSP and RPP are great ways to invest in your future. The main difference between the two plans is how they are set up and managed. With an RRSP, it’s up to you to open the account, fund it, and manage it. With an RPP, your employer is in charge.
To learn more about saving for retirement, check out our guide on how to start preparing for retirement success.
