When you start planning for retirement, you have to consider all the sources of money you'll be receiving, plus the differences between them. For example, an important difference to understand is CPP vs. RRSP.
People often describe the sources of retirement income as a three-legged stool. You get money coming in from an employer pension (if you have one), your personal retirement savings, such as your Registered Retirement Savings Plan (RRSP), and government supports like Canada Pension Plan (CPP) and Old Age Security (OAS).
Because money is coming in from multiple directions, it's important to understand the differences between each source so you can learn to fully maximize them. In this article, we'll focus on CPP vs. RRSP.
Key Takeaways
- CPP contributions are mandatory for workers, while RRSP contributions are voluntary.
- CPP benefits are indexed to inflation.
- RRSPs depend on investment performance.
- In 2025, CPP contribution limits and earnings thresholds have increased.
- High inflation and interest rates impact RRSP withdrawals more than CPP benefits.
- CPP enhancements introduce a second earnings ceiling (CPP2) affecting higher earners.
CPP vs. RRSP: What's the difference?
Here's an overview of how the Canada Pension Plan differs from a Registered Retirement Savings Plan:
| Retirement Savings | CPP | RRSP |
|---|---|---|
| Starting age | * 60 - 70 | * You can convert your RRSP to an RRIF or an annuity and start taking payments at any age * You must convert to an RRIF or an annuity by the end of the year in which you turn 71 |
| Source of the contributions | * Mandatory automatic deductions from your paycheque | * Contributions are voluntary and made by the plan holder |
| Payment amount | * Based on contributions you made while working | * The government requires you to take a minimum amount out of your plan based on your age * You can take out more if you like, but not less |
| When do payments stop? | * When you pass away * A percentage of your payment can go to a surviving spouse | * When you run out of funds or you pass away * Plan transfers to a surviving spouse, they can continue to take payments |
| Are payments taxable? | Yes | Yes |
First, the similarities between CPP and RRSP
Both are tailored for people in the workforce and are, therefore, not universal. The amount you can expect to receive from either will depend, to a certain extent, on the amount of your past contributions.
Both plans intend to provide income for retired people who no longer work.
Now the important differences between CPP and RRSP
The major difference is that the employer and the employee must pay CPP contributions. These are a set percentage of your pre-tax pay that you can find on every paycheque.
CPP provides a source of income for people when they retire, and payments will continue until the recipient passes away.
In contrast, an RRSP is a plan that you contribute to voluntarily. You can contribute a maximum amount each year based on your income, and your contributions are tax-deductible.
You'll be required to take payments from the plan when you reach a certain age, and the payments will continue until the plan is exhausted.
Transferring CPP payments to your RRSP
You can take your CPP payments and use them as RRSP contributions. This is possible as long as you're under 71 and have unused RRSP contribution room.
That said, you might want to talk to a tax professional to make sure this is the right move for you.
If you're over 71, you can't contribute to an RRSP anymore. At this point, rather than contributing to your RRSP, you'll need to start taking payments from it.
Instead, you must collapse your RRSP and convert it to an income-paying investment (like an RRIF) by December 31 of the year you turn 71.
There are several ways to see how much RRSP contribution room you have, including looking at your Notice of Assessment (NOA). If you exceed your maximum allowable contribution room, you may face penalties.
How to contribute your CPP payments to your RRSP
There are a few ways you can use your CPP payments as RRSP contributions:
- Set up an automatic payment in the amount of your CPP to be deposited into your RRSP.
- If you don't want an automated deduction, you can make contributions manually.
- Contribute the amount of your CPP payments annually and claim it for the current tax year.
Typically, you'll have 60 days in the new year to contribute to your RRSP and claim the deduction for the previous tax year.
Pros and cons of contributing your CPP payments to your RRSP
As with anything, there are advantages and disadvantages to using your CPP payments as RRSP contributions:
Pros of contributing to your RRSP with your CPP payments
- It helps lower your taxable income.
- A lower income can mean you qualify for other government benefits like the Guaranteed Income Supplement (GIS).
- It increases your RRSP savings so you have more income when you're over 71.
- It allows those funds to grow tax-free within the RRSP.
Cons of using CPP payments to contribute to your RRSP
- You might miss other opportunities, such as using funds from CPP to pay off debt.
- You could over-contribute to your RRSP and be subject to penalties.
- It could leave you short of cash.
CPP vs. RRSP: Tax implications
Here are a few details related to CPP tax implications :
- Contributions are deducted from your gross income and matched by your employer.
- Benefits received are taxable income.
- Contributions don't provide a tax deduction but are required by law.
These points explain taxes related to RRSPs:
- Contributions are tax-deductible, reducing your taxable income in the year of contribution.
- Investment growth within the RRSP is tax-deferred.
- Withdrawals are taxed as income in the year they are taken.
Impact of high inflation and interest rates
The effects of inflation and interest rates differ depending on whether you're relying more on CPP or RRSPs, but ultimately, CPP offers more security during inflationary periods. RRSPs require active management to protect against erosion in value and poor returns due to rising rates or market dips.
Here are some things to consider, related to how inflation and interest rates affect your retirement income:
- CPP offers some protection: One of the key advantages of CPP is that it's indexed to inflation. Each year, CPP payments are adjusted based on the Consumer Price Index (CPI), which helps maintain your purchasing power even as living costs increase. This makes CPP a stable and predictable source of income, especially during periods of high inflation.
- RRSPs are more vulnerable to market shifts: Your RRSP’s value depends on how your investments perform. If you're close to retirement and hold long-term bonds or rate-sensitive assets, your savings could take a hit. You might need to change your withdrawal plan or retire later to make your money last.
- Withdrawal timing matters: Taking money out of your RRSP when the market’s down means you might lose more. Switching to an RRIF during a market downturn can make this worse since you have to withdraw money no matter what. This timing risk is called the "sequence of returns."
- Interest rates matter: Short-term GICs and cash pay more interest now than in previous decades, helping retirees earn steady income. These still aren't fully safe from inflation, though.
- Review and rebalance regularly: Today's economic uncertainty (regarding tariffs and trade wars) makes it a good time to review how your RRSP is invested. Spreading your money across different types of investments – like real return bonds, dividend stocks, or inflation-linked ETFs – can help protect against uncertainty.
Changes to CPP: 2025 update
In 2025, several changes to CPP contributions and benefits were implemented, including a YMPE increase and a top-up for CPP death benefit recipients.
Here's a summary of the most important CPP changes:
- Year's Maximum Pensionable Earnings (YMPE): Increased to $71,300.
- Year's Additional Maximum Pensionable Earnings (YAMPE): Increased to $81,200.
- Maximum annual employee and employer contributions: Each increased to $4,034.10.
- Self-employed maximum contribution: Increased to $8,068.20.
- Top-up for CPP death benefit recipients: The top-up amount is $2,500.
- New benefits for dependent children of disabled or deceased contributors attending school part-time: They can receive $150.89 per month.
- Extended eligibility for DCCB recipients: Children remain eligible even when their parents reach age 65.
Another important thing to note is the second earnings ceiling (CPP2) introduced in 2024.
Those who earn annual wages over the first earnings ceiling, or YMPE, now make additional CPP contributions, referred to as CPP2 contributions. The top limit (or ceiling) is the "year’s additional maximum pensionable earnings," or YAMPE.
The YAMPE for 2025 was increased to $81,200. This means that pensionable earnings between $71,300 and $81,20 are subject to CPP2 contributions.
The maximum CPP2 contribution for self-employed individuals is $792 for 2205.
You can find more information about CPP amendments here: Changes to the Canada Pension Plan.
How to use CPP and RRSPs together
For most Canadians, the best approach is to combine both sources of income.
Here are a few tips:
- Max out RRSP contributions during your high-income years to lower your taxes and grow your savings tax-free.
- Delay CPP until age 70 if possible — your monthly benefit increases by 8.4% per year after age 65.
- Balance withdrawals in retirement to stay in a lower tax bracket. Consider withdrawing from your RRSP before CPP kicks in, especially if you're retiring early.
- Spousal RRSPs can help balance retirement income and reduce your overall tax burden as a couple.
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Is CPP enough for retirement?
For most people, no. CPP is designed to replace about 25-33% of your average pre-retirement earnings, depending on when you start collecting. You’ll likely need personal savings, RRSPs, and/or a workplace pension to cover the rest.
Do you get less CPP if you have an RRSP?
No, your RRSP savings don't have an impact on how much CPP you receive. Your CPP payment amounts are based on your work history and contributions, not your personal assets or income from other sources.
Is it better to contribute to a pension or RRSP?
If your employer offers a pension with matching contributions, this is usually better than making your own RRSP contributions. However, RRSPs provide more flexibility and control over an investment. They're also an especially valuable option for self-employed individuals.
Can you have CPP, OAS, and RRSP income at the same time?
Yes, you can draw income from CPP, OAS, and your RRSP during your retirement. Just keep in mind that all three are taxable. This can affect your overall tax rate and eligibility for other benefits, including GIS.
When should I start taking CPP?
You can start as early as age 60 or wait as late as age 70. Receiving them early can help you qualify for more GIS, but receiving them later means your monthly payment amounts will be higher.
When are CPP payments?
CPP payments are distributed on a monthly basis, usually on the third-to-last business day of each month. The first payment date for 2025 was January 29, and the final payment will be provided on December 22.
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