The RRSP/PA system has a comprehensive limit for tax assisted retirement savings of 18% of earned income up to a dollar limit (i.e. money purchase limit) that applies to total contributions under registered retirement savings plans (RRSPs), money purchase provisions (MP provisions) of registered pension plans and deferred profit sharing plans (DPSPs) and benefits accrued under defined benefit provisions (DB provisions) of registered pension plans (RPP).
The PA ensures that all taxpayers at comparable income levels will have access to comparable tax assistance, regardless of the type of plan to which they belong. The PA is the total of all pension credits for the year in respect of the individual and the employer. An individual receives a pension credit for each DPSP or benefit provision of a registered pension plan (RPP) in which they participate during the year. In most cases the employee participates in only one provision; therefore, their pension credit will also be their PA.
A PA or pension credit does not arise as a result of membership in a group RRSP.
A DB provision is a provision where the benefits at retirement are defined (e.g., 2% of final average earnings, $26 a month). For DB provisions, the PA converts the yearly-accrued pension benefit into a dollar equivalent so that it can be deducted from the 18% limit.
The benefits under a money purchase (defined contribution) provision and a DPSP on the other hand do not require conversion, as their benefits are already accrued on a contribution basis. Their deduction from the comprehensive limit is on a straight dollar-for-dollar basis.
To the extent that the maximum limit is not fully used with an RPP or DPSP, an individual would be able to contribute the balance into his or her own RRSP.
For examples of PA calculations for DPSPs and RPPs, see the PA Guide T4084.