The Plan is a tax-effective way to save for retirement. Your contributions to the Plan are tax-deductible, and the matching contributions from your employer are not a taxable benefit. As a member of the Plan, your retirement funds in the Plan are sheltered from taxation until you retire or withdraw them.
Your personal retirement savings such as a Registered Retirement Savings Plan (RRSP) can also make an important contribution to your retirement income. Plan members should be aware that the pension earned in each tax year will reduce the member’s available ‘RRSP’ room in the following tax year.
RRSPs are tax sheltered savings arrangements that allow you to save for retirement on a tax-deferred basis. Your “RRSP room”, which is reported to you each year by the Canada Revenue Agency (CRA), is the amount you can contribute to your RRSP annually. You also need to have enough RRSP room to make certain past service purchases, if you are eligible to do so.
CRA advises you of your RRSP room on the Notice of Assessment you receive after filing your income tax return each year.
Pension adjustments are calculated annually by your employer and reported on your T4 form. Pension adjustments are one of the factors used by the Canada Revenue Agency (CRA) to determine your RRSP contribution limit. The other factor is your earned income in the prior year.
The pension adjustment (PA) is the deemed value of the pension plan benefits earned in a year and is calculated using the following formula:
PA = (9 x pension entitlement for the year) minus $600.