Many Canadian workers still do not have a workplace registered pension plan (RPP). Statistics Canada reported that the RPP coverage rate was 37.7% of paid workers in 2023. The Pooled Registered Pension Plan (PRPP) was introduced to help expand access to workplace retirement savings, especially for employees and self-employed people who do not have traditional pension coverage.
What is a PRPP in Canada?
A Pooled Registered Pension Plan (PRPP) is a type of group retirement savings plan that is designed to provide an affordable option for Canadians who do not have access to workplace pension plans, such as self-employed individuals or employees of small and medium-sized businesses
Structurally, a PRPP operates in a similar fashion to a defined contribution pension plan. But there is one big difference: employers do not have to contribute to it unless they choose to. It is completely optional for them.
Even though they are optional, PRPPs can be part of an employee benefits to help employees save for the future. PRPPs let employers automatically enroll their employees, making it easier for more workers, especially those without a workplace pension, to start saving for retirement.
How Do PRPPs Work?
The core concept of a PRPP is to “pool” the assets of multiple individuals and employers into a single, large plan. This pooling strategy helps to reduce administration costs and can provide members with access to lower-cost investment options that are typically available only to members of large pension plans.
Instead of employers managing the plan, PRPPs are run by licensed administrators, typically large financial institutions like banks or insurance companies. These administrators are responsible for everything from managing the investments to handling the paperwork and communicating with members.
For employers, offering a PRPP is straightforward and low-risk. Their main responsibility is to collect contributions through payroll deductions and send them to the administrator.
For employees, the process is designed to be simple. If your employer offers a PRPP, you are typically enrolled automatically, though you have a 60-day window to opt out. The contributions are then deducted directly from your paycheque, making it an easy way to save consistently.
What are the Key Benefits of PRPPs?
Besides the usefulness of potentially lowering members’ investment management expenses, PRPPs in Canada offer four other main advantages, including:
- Professionally Managed Funds: Licensed PRPP administrators oversee investment portfolios using professionally managed strategies designed to align with different risk profiles.
- Tax-Deferred Earnings: Investment income and growth within PRPPs are not taxed until funds are withdrawn in retirement as a registered savings vehicle.
- Flexible Contributions: Employers can opt to voluntarily match employee contributions, but are not mandated to contribute, unlike RPPs.
- Simplified Administration: Employers avoid complex pension reporting and regulatory burdens, with most duties handled by the PRPP provider.
Overall, PRPPs can help more people get ready for retirement by offering low-cost, professionally managed investments, especially for workers in Canada who do not usually have access to a pension plan.
Who Can Contribute to a PRPP?
Employees and self‑employed individuals who are Canadian residents may contribute to a PRPP where PRPP legislation applies.
PRPP availability depends on jurisdiction. PRPPs apply in federally regulated workplaces and the territories, and in provinces that have adopted PRPP legislation, including:
- Ontario
- British Columbia
- Saskatchewan
- Quebec
- Nova Scotia
- Manitoba
- New Brunswick
Yukon, Northwest Territories, and Nunavut also allow PRPP contributions under federal legislation. Eligibility and plan features can vary by province and by administrator, so members should confirm the rules that apply to their specific plan.
There is also no minimum age threshold to contribute to a PRPP in Canada. However, the maximum contribution age limit is 71 years old, aligning with Registered Retirement Savings Plan (RRSP) rules. As a result, individuals cannot make personal or employer PRPP contributions after December 31st of the year they turn 71.
What is the Annual PRPP Contribution Limit?
Determining your Pooled Registered Pension Plan (PRPP) contribution room each year aligns with Registered Retirement Savings Plan (RRSP) rules, but has some additional considerations.
The goal is to help you save as much as possible for retirement savings based on your earned income, while ensuring that total contributions across all registered pension and savings plans do not exceed federally regulated maximums. Your total available “RRSP/PRPP deduction room” is calculated based on the following five factors:
- Unused RRSP Deduction Room: This carries forward indefinitely, year after year, if you have not fully contributed up to past RRSP limits. It forms the base that compounds.
- 18% of Prior Year’s Employment/Self-Employment Income: Similar to defining a regular RRSP room, PRPPs use the 18% of earnings formula from the preceding calendar tax year. However, there are further restrictions around annual maximums.
- Current Year’s Maximum RRSP Dollar Limit: The maximum RRSP contribution limit is set annually by the Canada Revenue Agency (CRA). Participants should consult the CRA for the current year’s limit and confirm how it applies to PRPP contributions.
- Minus Any Pension Adjustments: If you actively contribute to a registered Workplace Pension Plan or personal equivalent, your PRPP allotment decreases based on that funding to avoid over-contribution. Employers report annual Pension Adjustment amounts on T4 slips.
- Plus Pension Adjustment Reversals: These credits accumulate if ceasing contributions to another pension. They then raise PRPP limits gradually in the following tax years accordingly.
The PRPP contribution room compounds each year, similar to RRSPs. This gives you the chance to grow your retirement savings over time while deferring taxes.
How to Set Up and Start Contributing to a PRPP
Now that we have covered the key features and benefits across various factors, the process for getting started with a PRPP in Canada involves following the five main steps:
Step 1: Select One of the Licensed PRPP Providers
Industry regulators have approved five large financial institutions to provide PRPP administration services in Canada:
- Sun Life Financial
- Manulife Financial
- Royal Trust Corporation
- Industrial Alliance Insurance and Financial Services
- Canada Life Assurance Company
Comparing offerings between them can help narrow the selection, as available investments and fees may vary.
Step 2: Determine Your Annual Contribution Limit
Refer to your latest tax Notice of Assessment from CRA, which states your RRSP deduction limit for the current year. This amount aligns with your available PRPP maximum contributions.
Remember the calculation factors, including unused past room, 18% of earned income, and pension adjustments.
Step 3: Decide on Contribution Frequency and Amounts
For employees, PRPP contributions are usually made through payroll deductions. Self-employed members can typically set up automated monthly transfers or make lump-sum contributions directly with the provider, up to their available limit.
Step 4: Select Your Investment Portfolio Allocations
PRPPs generally offer a pre-set menu of investment options designed by the plan administrator. Members choose an option that aligns with their risk tolerance and expected retirement timeline.
Step 5: Track Statements and Rebalance Holdings
Log in online to monitor your PRPP account’s periodic statements and confirm that your savings grow as projected. Revisit holdings annually and rebalance the portfolio if certain assets become overweighted.
That said, you can follow these simple steps to make it easy to open a Pooled Registered Pension Plan once you have chosen an approved provider.
How are PRPP Contributions Taxed?
Member contributions to their PRPP account are deductible for income tax purposes, providing an immediate tax benefit each year that funds are contributed:
- Employee PRPP Contributions: Tax-deductible up to their available limit
- Employer PRPP Contributions: Not considered taxable income for the member
- Investment Earnings: All growth within the PRPP is tax-deferred
Consequently, both employee and any employer portions grow faster without annual taxation on capital gains, interest, or other investment income.
When Can You Withdraw Funds from a PRPP?
Most PRPP assets are locked in under pension legislation, meaning funds generally can’t be withdrawn freely before retirement.
Under federal PRPP rules, limited lump‑sum unlocking may be available in specific situations, such as:
- Shortened life expectancy
- Small account balance (generally under 20% of the Year’s Maximum Pensionable Earnings)
- Non‑residency for tax purposes
Withdrawals are taxable in the year received and may be subject to withholding tax. PRPP funds cannot be withdrawn under the Home Buyers’ Plan (HBP) or Lifelong Learning Plan (LLP).
Because unlocking rules vary by jurisdiction, members should confirm the applicable legislation and administrator rules that apply to their plan.
How Do PRPPs Compare to Other Key Retirement Savings Plans?
PRPPs fill a unique space between individual Registered Retirement Savings Plans (RRSPs) and Registered Pension Plans (RPPs).
The following table summarizes some of the key differences in Canada:
| Feature | Pooled Registered Pension Plan (PRPP) | Registered Retirement Savings Plan (RRSP) | Registered Pension Plan (RPP) |
| Employer Contributions | Voluntary | Not applicable under the plan | Typically required under plan terms |
| Employee Contributions | Allowed | Allowed | Varies |
| Professionally Managed | Yes (by the plan administrator) | Depends on investment choice | Yes (by plan sponsor/administrator) |
| Assets Locked-In | Subject to applicable legislation | No | Generally locked-in |
| Pooling of Funds | Yes | No (individual accounts) | Yes |
| Investment Options | Determined by the plan administrator | Determined by the individual | Determined by the plan |
| Spousal Contributions | Not permitted | Permitted | Not typically permitted |
These differences highlight how PRPPs fit within Canada’s broader retirement savings landscape, alongside RRSPs and registered pension plans. PRPPs are designed to combine certain features of individual retirement savings plans with elements commonly found in workplace pension arrangements.
How to Maximize Your PRPP Savings
You can follow the six practical tips below to optimize PRPP growth as part of your overall retirement nest egg:
Tip #1: Contribute annually up to your PRPP limit
As the contribution room compounds each year, much like RRSPs, it is wise to maximize your PRPP savings rate annually up to the allowed limit. Making this a consistent habit takes advantage of forcing monthly savings into the plan and tax-deferred growth.
Tip #2: Take advantage of any employer PRPP contributions
While voluntary, some employers elect to match employee PRPP amounts up to a certain threshold. This essentially provides bonus “free money” towards your retirement, amplifying savings in a tax-efficient manner.
Tip #3: Select investments appropriate for your time horizon
PRPPs typically offer a menu of investment options designed by the administrator. Members with longer time horizons may consider options with higher growth potential, depending on their risk tolerance and the choices available within the plan.
Tip #4: Transfersavings from previous workplace pensions
If you leave an employer that had a registered pension plan (RPP), rolling over that amount into your PRPP account consolidates activities. This maintains the tax-deferral benefit while also aggregating total savings for growth.
Tip #5: Consolidate PRPP accounts when changing jobs
Similarly, when starting with a new employer that utilizes a PRPP, transferring your past PRPP and consolidating provides operational ease. This ensures continuity of investment strategy rather than maintaining multiple independent plans.
Tip #6: Review investments annually
Although PRPPs are professionally managed, reviewing your account periodically can help ensure your selected option remains aligned with your retirement timeline and risk preferences. As retirement approaches, many members reassess their risk exposure based on individual circumstances.
That said, following the above tips and making regular contributions each year can help grow your PRPP savings over time. Using PRPPs strategically together with other savings and investment vehicles provides overall diversification as well.
The bottom line
Pooled Registered Pension Plans regulations give more Canadians, especially those without workplace pensions, a way to save for retirement with lower costs and tax benefits. PRPPs help fill the gap between personal RRSPs and traditional workplace pension plans.
That said, employees not enrolled in employer-sponsored registered plans, along with all self-employed individuals, should consult a licensed PRPP provider to determine if opening an account would benefit their overall retirement strategy.
FAQs about Pooled Registered Pension Plans
How do PRPPs help small businesses?
PRPPs give small companies a way to offer retirement savings for employees without the cost and paperwork of managing their own pension plan. The PRPP provider handles administration. Employers can voluntarily contribute but aren't mandated to.
What happens if you leave your job?
A key benefit of PRPPs is they are portable when you change jobs. Your account and savings always stay with you. You can even consolidate multiple PRPPs into one account from different employers over time.
Why invest using a PRPP versus RRSP?
PRPPs provide institutional portfolio management and access to pooled fund investment products not available to individual RRSP holders. This can increase diversification while reducing management fees.
When can PRPP funds be withdrawn?
Unlike RRSPs, PRPP savings are intended strictly for retirement and have restrictions on pre-maturity withdrawals except for certain extenuating circumstances.
Do PRPP statements need to be filed with taxes?
No. Since your PRPP contributions are reported to CRA directly by the provider, members do not have to include statements with their tax returns.
Is investment income within a PRPP taxable?
A key benefit of PRPPs is that all investment earnings and growth of your savings within the account are tax-deferred. Taxes are only paid when withdrawals begin after retiring.
Do employers require PRPP payroll deductions?
No. Offering a PRPP is voluntary for companies to provide added employee retirement benefits. Any matching contributions are optional. Employees can enroll independently as well.
How do PRPP withdrawals impact government benefits?
Like other registered savings plans, PRPP payments after retirement are considered taxable income. This could potentially impact income-tested federal benefits such as Old Age Security (OAS) payments if total household income exceeds thresholds.
