RRSP Breakdown (Part 2): Group RRSPs and Pension Plans
Learn how Group RRSPs and Canadian workplace pension plans really work. Simple explanations, CRA-based facts, and practical examples for everyday Canadians.
GUIDES
@StartRightCan
12/2/20254 min read
1. What Exactly Is a Group RRSP?
A Group RRSP is simply an RRSP offered through your employer. It follows the same CRA rules as your personal RRSP, but contributions happen automatically through payroll.
Key features (simple English):
Your employer sets it up through a financial institution.
You contribute straight from your paycheque.
Some employers match your contributions.
You get the tax deduction immediately because your employer sends less tax to CRA.
Your contribution room is the same room you see on your CRA Notice of Assessment.
CRA reference:
RRSP rules & contribution limits — https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans.html
2. How Contributions Actually Work
A. Your contributions
These come from your salary before tax. Example:
You earn $5,000/month.
You choose to put $300/month into your Group RRSP.
Your taxable pay becomes $4,700/month instead of $5,000.
CRA takes tax based on $4,700.
That’s why you feel the “tax savings” immediately.
B. Employer contributions (the match)
If your employer matches your contribution:
You put in $300.
Employer puts in $300.
Total: $600/month invested.
Important:
Employer contributions also use up your RRSP contribution room, because CRA treats all RRSP contributions the same.
Example using numbers:
CRA says you have $18,000 RRSP room this year.
You contribute $3,600 through payroll ($300 × 12).
Employer matches $3,600.
Total: $7,200 used.
Remaining RRSP room:
$18,000 − $7,200 = $10,800
3. Withdrawal Rules (Different From Personal RRSPs)
You can withdraw from a Group RRSP anytime unless your employer restricts it.
But the tax treatment is identical:
Withholding tax applies (10%–30% depending on amount).
Withdrawal is added to your income for the year.
Employer match is still yours unless they have vesting rules (more below).
4. Vesting: When Employer Match Becomes “Your Money”
Some companies say:
If you leave before 1 year, you lose part or all of the employer contributions.
After the vesting period, employer contributions fully belong to you.
This is common in pension plans but shows up in some Group RRSPs.
Vesting rules come from the plan sponsor, not CRA.
5. What Investments Sit Inside a Group RRSP?
Typically:
Mutual funds
GICs
Target-date funds
Low-cost index funds
Your employer chooses the fund lineup, not CRA.
You still choose what to invest in within the lineup.
Check out the first part of this series: RRSP Explained In Simple Language: Individual vs. Spousal RRSP: https://startingrightcanada.com/rrsp-explained-simply-individual-vs-spousal-rrsp-canada
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6. How Your Contribution Room Is Calculated for Group RRSPs
Contribution room formula (CRA):
18% of last year’s earned income up to the annual CRA limit, minus your pension adjustment.
For Group RRSPs:
Your own contributions use room
Employer contributions use room
There is no pension adjustment (PA) for Group RRSPs because Group RRSPs are not registered pension plans
PAs apply only to pension plans (explained shortly).
7. Pension Plans in the Workplace: The Other Side of Retirement Plans
While a Group RRSP is an RRSP, a pension plan is a different registered plan entirely, governed by pension legislation (not just the Income Tax Act).
There are two major types:
Defined Contribution (DC) Pension Plan
Defined Benefit (DB) Pension Plan
8. Defined Contribution Pension Plan (DC): Simple English
Think of a DC plan as a forced savings plan with employer contributions.
How it works:
A percentage of your salary goes in.
Employer also contributes.
Money grows based on investment performance.
What you get at retirement depends on what the account grew to.
Real example:
You earn $70,000
You contribute 5% = $3,500
Employer contributes 5% = $3,500
Total = $7,000/year invested
Growth depends on markets
How CRA calculates your room:
DC plans trigger a Pension Adjustment (PA).
PA formula per CRA:
Total pension contributions × a factor, reported by your employer.
Source: CRA T215 slip information
https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t215.html
Your PA reduces next year’s RRSP contribution room.
9. Defined Benefit Pension Plan (DB): Simple English
This is the “old-school” pension:
You are promised a specific monthly income at retirement.
How it works:
Your retirement income is based on:
Your years of service
Your salary
The plan’s formula (e.g., 2% × years of service × average salary)
Real example:
Formula: 2% × years of service × average of best 5 years salary
25 years service
Avg salary $80,000
Retirement income:
2% × 25 × $80,000 = $40,000 per year for life
Your personal contributions go into the plan, but your retirement income is not dependent on investment performance. The employer manages that risk.
RRSP interaction:
DB plans create the largest Pension Adjustment (PA), which can significantly reduce your RRSP room.
10. Locked-In Accounts (LIRA, LIF) — Why They Matter
When you leave a job:
Group RRSP money moves to your regular RRSP.
Pension money typically becomes a Locked-In Retirement Account (LIRA).
You cannot withdraw from a LIRA like an RRSP.
Reason: pension laws require that money to be preserved for retirement.
11. Practical Everyday Examples
Example 1: You’re in a Group RRSP and thinking of contributing extra
You already put $300/month ($3,600/year).
Employer matches $3,600.
You have $18,000 RRSP room.
Remaining room = $10,800.
You can still contribute without worrying about PAs.
Example 2: You’re in a DC pension plan
Your PA last year was $10,000.
CRA says your RRSP room this year is $18,000 normally.
But PA reduces it:
$18,000 − $10,000 = $8,000 available room.
Example 3: You’re switching employers
Current job: DC pension
New job: Group RRSP
Pension money becomes LIRA
New contributions go to your Group RRSP
New employer match uses up RRSP room
No new PA unless you join the new company’s pension plan
12. Which Is “Better”?
It depends on what you value:
If you want flexibility → Group RRSP
You can withdraw (taxed) and choose wide fund options.
If you want forced saving + employer structure → DC Pension
If you want guaranteed lifetime income → DB Pension
Harder to find today, but extremely valuable.
If your employer offers any match
Take the match. It’s 100% return on your contributions.
13. CRA Links You Can Verify
RRSP limits & rules:
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans.html
Pension adjustment (PA):
https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t215.html
Registered pension plan rules:
https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/registered-pension-plans.html
Locked-in accounts (provincial regulators vary):
Manitoba example: https://www.gov.mb.ca/labour/pension/lockedin.html
Ontario example: https://www.fsrao.ca/
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