Company Pensions

Defined-benefit (DB) pension

A defined-benefit plan promises you a specific monthly income in retirement, typically calculated from years of service and final average earnings. The employer (and the pension fund) bear investment and longevity risk; you bear the risk that the employer or plan becomes unable to pay.

DB plans are increasingly rare in the private sector but remain common in public-sector employment (federal, provincial, municipal, healthcare, education). If you are in one, your personal RRSP room is reduced each year by a pension adjustment (PA) reported on your T4.

Defined-contribution (DC) pension

A defined-contribution plan promises only a level of contribution — you and your employer each put a percentage of salary into the plan. The eventual retirement income depends on contribution amounts and investment returns; you bear the investment risk.

DC plans also produce a pension adjustment that reduces your personal RRSP room. The upside compared to a group RRSP is typically lower fees and employer-matched contributions.

Group RRSP

A group RRSP is not technically a registered pension plan — it is a regular RRSP administered by an employer, often with employer matching. From a tax perspective contributions are deducted on your personal return and count against your normal RRSP contribution room (no pension adjustment).

Group RRSPs are common when an employer wants to offer a retirement benefit without the regulatory overhead of a formal pension plan.

Coordinating with personal accounts

A common mistake is to ignore the pension-adjustment number on your T4 when deciding how much to contribute to an RRSP. The PA is already netted from your contribution room on your Notice of Assessment, but if you contribute based on the gross RRSP maximum rather than the room your NOA reports, you risk an over-contribution penalty.