A pooled registered pension plan (PRPP) is a retirement savings option designed to help Canadians, especially those without workplace pension plans, save for their future.
PRPPs offer a simple and cost-effective way to grow retirement savings, with contributions that can come from employees, employers, or self-employed individuals. Like an RRSP, contributions are tax-deductible, and investment income grows tax-deferred until withdrawal.
Here, you'll read about how PRPPs work, contribution rules, and how they compare to other retirement plans like RRSPs and RPPs.
Key Takeaways
- PRPPs provide retirement savings options for individuals without workplace pension plans.
- They're only available to residents of the Territories, to those working for federally regulated businesses, and those in provinces with proper legislation.
- Contributions to PRPPs are tax-deductible, similar to RRSPs.
- Employers may contribute to PRPPs but aren't required to do so.
- PRPPs follow the same contribution limits as RRSPs.
- PRPPs differ from RPPs and RRSPs in structure, administration, and withdrawal rules.
What is a PRPP?
A pooled registered pension plan (PRPP) is a voluntary retirement savings plan available to employees and self-employed individuals. PRPPs are administered by financial institutions and pool contributions from multiple participants, which reduces administrative costs.
The availability of PRPPs across Canada is a bit complicated. Employees in Nunavut, Yukon, and Northwest Territories have relatively easy access to PRPPs, as do all Canadians working in federally regulated businesses or industries. Otherwise, you can only hold this type of account if you're in a province with specific PRPP legislation – at the time of writing, this includes the following provinces:
- British Columbia
- Quebec
- Manitoba
- Saskatchewan
- Ontario
- Nova Scotia
These registered savings plans offer a straightforward and low-cost way to build retirement savings. This makes them ideal for those who don't have access to an employer-sponsored pension plan.
Since PRPPs are registered with the Canada Revenue Agency (CRA), contributions grow tax-deferred until withdrawal. This tax-deferred growth allows participants to accumulate savings faster, making PRPPs an attractive option for long-term retirement planning.
Who can participate in a PRPP?
PRPPs are primarily designed for:
- Employees without workplace pension plans
- Self-employed individuals
- Small business employees
Participation is voluntary, meaning employees and self-employed individuals can choose whether to contribute to a PRPP.
What is a PRPP contribution?
PRPP contributions are funds deposited into this particular type of savings plan/account. They can be made by employees, employers, and/or self-employed individuals.
Like RRSP contributions, PRPP contributions are tax-deductible, which reduces the participant’s taxable income for the year.
Investment income generated within a PRPP isn't taxed until the funds are withdrawn, allowing retirement savings to grow without immediate tax implications.
Contributions can be made each year between January 1 and 60 days into the following year. You're no longer eligible to make contributions as of December 31 of the year you turn 71 years old.
For the 2024 tax year, the PRPP contribution limit is $31,560, or 18% of your previous year's income – whichever amount is lower. These are the same limits and guidelines as those set for RRSPs.
Any unused contribution room can be carried forward to future years, allowing participants to catch up on contributions.
How do PRPP employer contributions work?
Employers may choose to contribute to their employees’ PRPPs, but participation is voluntary. Employer contributions are not included in the employee’s taxable income and do not reduce the employee’s RRSP deduction limit. These contributions provide an extra boost to retirement savings by adding additional funds to the plan.
Employer contribution limits
Employer contributions and employee contributions must stay within the individual’s RRSP/PRPP contribution room.
For example, if an employee’s RRSP contribution limit is $20,000 and they contribute $10,000 to their PRPP, their employer can contribute up to $10,000 without exceeding the limit.
Benefits of employer contributions
Employees benefit from their employer's PRPP contributions in several ways:
- Boosted retirement savings: It's essentially free money added to your retirement savings
- No impact on employee RRSP limit:
- Simplicity: Contributions are automatic
Employers also benefit from making these contributions:
- No payroll taxes on contributions: No CPP, EI, Workers Compensation premiums, etc.
- No management responsibilities: Unlike traditional pension plans, employers don't have to manage the PRPP
- Attraction and retention tool: Can make a job offer look more attractive
Are PRPP contributions required?
Participation in a PRPP is voluntary. Employers aren't required to contribute to a PRPP, although they may choose to offer it as part of their benefits package. If they do offer a PRPP program, the employees don't have to participate.
Self-employed individuals can also choose to open and contribute to a PRPP.
Contributions to a PRPP can be adjusted or stopped at any time, giving participants flexibility to manage their retirement savings according to their financial situation.
Since PRPPs are voluntary, individuals can explore other retirement savings options, such as RRSPs or TFSAs, if preferred.
PRPP vs RPP: What’s the difference?
| Plan type | Administration and structure | Participation and contributions | Withdrawal rules | Suitability |
|---|---|---|---|---|
| RPP | * Usually employer-sponsored * Managed by a pension administrator * Rules re: employer and employee contributions * Require oversight and regulatory compliance | * Employee participation can be mandatory * Early withdrawals may trigger higher taxes and reduce long-term savings | * Withdrawals subject to pension regulations * Funds may not be accessible until retirement | * Large employers * Those looking to provide a structured pension plan with predictable retirement income |
| PRPP | * Administered by financial institutions * Pools contributions from multiple participants to reduce costs * Externally managed, so employer's admin requirements are minimal | * Voluntary participation * Employer contributions optional * Employer contributions don't impact employee's RRSP limits | * Withdrawals taxed as income * Withdrawals subject to taxes * Early withdrawals may trigger even higher taxes | * Small businesses * Self-employed individuals * Anyone without a workplace pension * Those looking for a low-cost, flexible retirement plan |
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$25 GeniusCash + Delicious meal choices with fresh ingredients + Front-door delivery.PRPP vs RRSP: How do they compare?
| Plan type | Administration and control | Contribution flexibility | Employer involvement |
|---|---|---|---|
| RRSP | * Personal investment (not pooled) * Self-directed | * Voluntary contributions * Flexible contribution amounts (per deposit) * Annual contribution limits | * Contributions optional * Contributions made through group RRSP * Contributions reduce plan holder's annual limit |
| PRPP | * Administered by financial institutions * Pooled with multiple participants * Professionally managed | * Voluntary contributions * Optional automatic payroll deductions * Annual contribution limits | * Contributions optional * Contributions don't reduce plan holder's annual limit |
What is the RRSP/PRPP deduction limit?
PRPP deduction limits and guidelines are the same as those for RRSPs, which means contributions reduce the individual’s available deduction room for the year.
The deduction limit is calculated as 18% of the previous year’s earned income, up to the annual CRA limit.
Here are some tips regarding PRPP contributions:
- Track your limit: Avoid exceeding the limit by regularly checking your CRA My Account
- Carry forward unused room: Allows you to contribute more later
- Avoid over-contributions: Penalties will be imposed if you surpass the $2,000 lifetime over-contribution limit
PRPP transfers and withdrawals
Funds from a PRPP can be transferred to another registered retirement plan, such as an RRSP or a registered retirement income fund (RRIF). You can also transfer to a spouse’s registered plan, but only in certain circumstances related to the breakdown of a marriage or the death of an account holder.
When leaving a job, employees can transfer their PRPP balance to another plan, giving them flexibility to manage their retirement savings.
Proper transfers ensure that funds continue to grow tax-deferred and are not subject to immediate taxation. Transfers don't trigger tax consequences if completed properly.
How are PRPP withdrawals taxed?
Withdrawals from a PRPP are taxed as income in the year they are withdrawn. The amount withdrawn is added to your taxable income, which may push you into a higher tax bracket.
Withholding taxes will apply.
You can avoid penalties and taxes by transferring funds to another registered account instead of directly withdrawing.
PRPP tips for maximizing savings
To get the most out of a PRPP, consider these strategies:
- Start contributing early: The earlier you contribute, the more time your money has to grow tax-deferred.
- Contribute regularly: Setting up automatic payroll deductions or automatic contributions from your bank account ensures consistent savings.
- Utilize unused contribution room: Maximize tax-deferred growth by taking advantage of unused contribution room from previous years.
- Increase contributions when possible: Boost contributions during high-earning years to benefit from a higher tax deduction and accelerate savings growth.
- Take advantage of employer contributions: If your employer offers to match contributions, maximize your contributions to receive the full match.
- Transfer PRPP funds carefully: When changing jobs or retiring, transfer PRPP funds to an RRSP or RRIF to maintain tax-deferred growth.
- Avoid unnecessary withdrawals: Early withdrawals reduce long-term savings and may trigger higher taxes.
FAQ
What is a PRPP?
A pooled registered pension plan (PRPP) is a voluntary retirement savings plan for employees and self-employed individuals. It's similar to an RRSP but pools funds from multiple participants to reduce costs and offers tax-deferred growth.
How do PRPP contributions work?
PRPP contributions can be made by employees, employers, and self-employed individuals, but there is an annual limit. Like RRSPs, all contributions are tax-deductible, and investment income grows tax-deferred. Luckily, contributions made by employers don't affect an employee’s deduction room.
What is the PRPP deduction limit?
The PRPP deduction limit follows RRSP rules, allowing contributions up to 18% of the previous year’s earned income, subject to the CRA’s annual maximum limit ($31,560 for the 2024 tax year). An unused contribution room can be carried forward.
What is PRPP on a tax return?
All PRPP contributions should be reported on a participant’s tax return, and this reduces their taxable income. Any contributions made by an employer aren't included here as income and don't affect PRPP or RRSP contribution room.
Can I transfer PRPP funds to another account?
Yes, PRPP funds can be transferred to another registered retirement plan, such as an RRSP or RRIF (or, in specific circumstances, a spouse's registered plan), without triggering tax consequences. Transfers provide flexibility and keep retirement savings tax-deferred.
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