Voluntary Contributions vs. RRSP Contributions

Making voluntary contributions to the Public Employees Pension Plan (PEPP) and contributing to Registered Retirement Savings Plans (RRSPs) lets you benefit now and in retirement.

Both types of contributions allow your retirement savings to grow while you pay less tax. Although they offer similar benefits, you will want to take time to analyze your personal situation to see if voluntary contributions to PEPP and/or RRSPs suit your needs best.

Mutual Benefits for Voluntary Contributions and RRSPs

By making voluntary contributions to PEPP or contributing to an RRSP throughout your working career you may benefit from immediate tax benefits at a time when your income may be the highest. Investment earnings from PEPP and RRSPs are tax-sheltered until withdrawal.

Annual Contributions Limits

The annual limit for pension contributions is the lower of 18% of your current year’s pensionable salary or the annual maximum ($31,560 for 2023). As a member of a Registered Pension Plan (like PEPP), your pension contributions will impact your RRSP room by lowering the amount of contribution room available.

Your annual limit for RRSP contributions is found on your annual Notice of Assessment (the letter you receive from Canada Revenue Agency (CRA) after you file your tax return). The RRSP contribution limit is the lesser of 18% of earned income from the preceding year or the annual maximum ($30,780 for 2023). If you have not contributed the maximum amount to your RRSP annually, any unused contributions will increase your RRSP contribution limit, but not your contribution limit with PEPP.

PEPP Voluntary Contribution Considerations

• Only active PEPP members may make voluntary contributions to the Plan.
• By making voluntary contributions to PEPP you can lower your taxable income for immediate tax savings on your pay cheque.
• Making voluntary contributions to PEPP is convenient. Your contributions are taken directly off your pay cheque and made via payroll deduction.
• You can take advantage of PEPP’s low administration fees by making voluntary contributions.
• You are responsible to make sure your contributions do not exceed your annual contribution limit.
• You cannot access voluntary contributions until you terminate from a PEPP employer. All withdrawals are subject to income tax.
• For more information on making voluntary contributions to PEPP, see the PEPP Talk on Voluntary Contributions on our website.

RRSP Contribution Considerations

• Anyone with “earned income” can contribute to an RRSP until the end of the calendar year the contributor turns age 71.
• You can deduct personal RRSP contributions from your gross income, at tax time, to reduce your income tax payable.
• You can make spousal RRSP contributions. For spousal RRSPs, one spouse makes the contributions, but the other spouse “owns” the plan. While the contributing spouse receives the deduction on his/her taxable income, RRSP funds withdrawn are included in the receiving spouse’s income. The contributing spouse is taxed for contributions that are withdrawn during the same calendar year, or the following two calendar years, of which the contribution was made.
• RRSP monies may be withdrawn prior to retirement. You are taxed on all withdrawals.