Pension Adjustment (PA)

To encourage Canadians to save for retirement, the Income Tax Act (ITA) allows individuals to take part in tax-assisted retirement savings. The system is based on an overall limit of 18% of an individual’s earned income, to a specified dollar limit. The overall limit applies to total retirement savings in registered pension plans (RPPs), deferred profit sharing plans (DPSPs), registered retirement savings plans (RRSPs) and pooled registered pension plans (PRPPs).

Employees who are members of RPPs and DPSPs have a pension credit reported each year. A member's PA is the total of that member's pension credits from all plans in which the member's employer participates in the year, not including RRSPs or PRPPs.

PAs make sure that all employees at similar income levels will have access to comparable tax-assisted retirement savings, regardless of what type of retirement savings plan they belong to.

A PA is an individual’s total pension credits for the year with a specific employer. A PA reflects the accumulation of benefits or level of savings in a year by, or for, a member because of his or her participation in one or more RPPs or DPSPs, and possibly, some unregistered retirement plans or arrangements. Since most individuals participate in only one RPP or DPSP, their pension credit will also be their PA.

An individual’s PA in a year reduces the amount that they can contribute to an RRSP and a PRPP in the next year. A PA can be zero, but it is never a negative amount. A PA is not required for a person who died in the year.

In addition to the benefit a member earns in a year, defined benefit (DB) RPPs can provide or improve member benefits for previous years.

If a member of a DB RPP is credited with new or improved benefits for previous years after 1989, the increase in the member’s lifetime retirement benefits means that a past service pension adjustment (PSPA) has to be calculated. A PSPA accounts for the additional pension credits that would have been included in the member’s PA for those previous years if the upgraded benefits or service had been provided then. Similar to a PA, a PSPA reduces the member’s RRSP deduction limit to RRSPs and PRPPs.

For more information and examples of PA calculations for DPSPs and RPPs, go to the T4084, Pension Adjustment Guide.