What is a Pooled Registered Pension Plan?

By Randall Orser | Investments

A few years back the Canadian government was realizing that people weren’t saving for retirement, and that the Canada Pension Plan (CPP) would have to go through drastic rate increases that would devastate the economy. So, the Pooled Registered Pension Plan (PRPP) was created.

A PRPP is a retirement savings option for individuals, including self-employed individuals. A PRPP enables its members to benefit from lower administration costs that result from participating in a large, pooled pension plan. It's also portable, so it moves with its members from job to job. Since the investment options within a PRPP are like those for other registered pension plans, its members can benefit from greater flexibility in managing their savings and meeting their retirement objectives.

Contributing to a PRPP

Like RRSPs, the maximum amount that a member or employer can both contribute to a PRPP in each tax year without tax implications is determined by the member's RRSP deduction limit.

Any employer PRPP contributions, combined with a member's contributions to their PRPP, RRSP, SPP, and spouse or common-law partner's RRSP and SPP, that are above the RRSP deduction limit may be considered excess contributions. It is important for members to know how much unused contribution room they have available in each tax year.

Any contributions made to a PRPP that are not deducted on the member's income tax and benefit return in each year are referred to as unused RRSP contributions. If a member withdraws the unused contributions from his or her PRPP, an offsetting deduction may be claimed. For more information, see What to do with unused registered savings plan contribution and "Withdrawing unused contributions" in Guide T4040, RRSPs and other Registered Plans for Retirement.

A member can make voluntary contributions to their PRPP between January 1 in each year and 60 days into the following year, up until the end of the year in which they turn 71. Member contributions are deductible on their income tax and benefit return, but the deduction must not exceed the difference between their RRSP deduction limit and the employer's contributions to their PRPP.

Death of a PRPP member

Like other registered retirement plans, when a PRPP member dies, all property held in the PRPP account is deemed to have been distributed immediately before the date of death. The fair market value (FMV) of the assets held in the account less any amounts paid to a qualifying survivor is included in the deceased member's income on the final income tax and benefit return.

In the case of the death of a member who had a spouse or common-law partner, if the deceased member's spouse or common-law partner was named in the agreement with the financial institution, the surviving spouse or common-law partner become a surviving member of the plan, taking over ownership and future direction of the PRPP account for the deceased. The surviving member is then entitled to receive a lump-sum payment from the PRPP or can choose to transfer the funds directly, on a tax-deferred basis, into another investment plan such as another PRPP, RRSP, SPP, RRIF or RPP.

Financially-dependent child or grandchild

In the case of a PRPP member who has a financially-dependent child or grandchild, the child or grandchild, if designated, will as a qualifying survivor, receive the funds from the deceased's member's PRPP account up to any amount designated. Since payments made from the PRPP are taxable, the child or grandchild would include the amount received as income on his or her income tax and benefit return. Same as for RRSPs, the amount received can be used to purchase a qualifying annuity.

If the financially-dependent child or grandchild has a physical or mental infirmity and is eligible for the disability tax credit (see line 316 – disability amount), the lump-sum amount from the deceased's PRPP can be directly transferred or "rolled over" on a tax-free basis, into a registered disability savings plan for an eligible individual.

Breakdown of the marriage or common-law partnership

A spouse or common-law partner or former spouse or common-law partner of a PRPP member, who is entitled to the funds from the member's PRPP account because of a breakdown of the marriage or common-law partnership, may transfer the lump-sum amount to: another registered plan such as another PRPP, RRSP, SPP, RRIF or RPP of the individual; or purchase a qualifying annuity.

Investment options

The investment options available for PRPPs are like those available for other registered plans, but there are some restrictions. The Income Tax Act does limit the type of investments that can be held in a PRPP to prevent tax avoidance planning. For example, a member cannot hold restricted investments in a PRPP such as their mortgage or debts, and shares of companies in which members have a significant interest.

The Pooled Registered Pension Plan (PRPP) is another great way for you to save for retirement, and, perhaps, save on the fees associated with other plans. What are you doing for retirement? If RRSPs, don’t make sense then look into the Pooled Registered Pension Plan (PRPP).

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