What Is a Registered Pension Plan? Types, Taxes, and Payouts

A registered pension plan is a retirement savings arrangement your employer (or your union) sets up and the Canada Revenue Agency approves for special tax treatment under the Income Tax Act. Contributions go in before tax, investment growth inside the plan is sheltered from tax, and you only pay tax when the money is paid out to you in retirement.¹ For 2026, a defined contribution plan can receive up to $35,390 in combined employer-and-employee contributions per year, and a defined benefit plan can accrue up to $3,932.22 in annual pension for each year of service.²

Plan money is held separately from the employer’s own accounts, through a trust, an insurance contract, a pension corporation, or a government-administered structure.³ That separation is the reason your retirement savings are out of reach of the employer’s creditors if the company runs into financial trouble.

The Two Types of Registered Pension Plans

Defined Benefit Plans

A defined benefit (DB) plan promises a specific retirement income calculated by a formula. The formula usually multiplies your years of service by a percentage of your average salary over a set period, often your highest-earning years. If you work 30 years under a 2% formula based on your best five years, you retire on 60% of that average salary. The 2026 ceiling is $3,932.22 in annual pension per year of service.²

The employer carries the investment risk. If the fund’s assets fall short of what’s needed to pay the promised pensions, the employer must top it up. You know what your retirement cheque will look like regardless of what markets do.

Defined Contribution Plans

A defined contribution (DC) plan specifies what goes in, not what comes out. You and your employer each contribute a set amount or percentage of your salary, and those contributions are invested. Combined contributions for 2026 are capped at $35,390.²

Your retirement income depends on how much was contributed and how the investments performed. Good markets mean a larger account; bad markets mean a smaller one. In a DC plan, you carry the investment risk, which is why paying attention to your investment choices matters.

How Contributions Are Taxed

Both sides of the contribution are tax-advantaged. You deduct your own RPP contributions on your tax return, reducing your taxable income dollar for dollar.⁴ Your employer’s contributions are deductible to them as a business expense and are excluded from your income, so you pay no tax on the employer’s share until you draw it as pension income.⁵ Investment earnings inside the plan grow tax-free until distribution.¹

The Pension Adjustment and Your RRSP Room

Your RPP participation directly reduces how much you can put into an RRSP. Each year, your employer reports a pension adjustment (PA) on your T4. For a DC plan, the PA is simply the total contributions made by you and your employer that year. For a DB plan, the PA is nine times the annual pension benefit you earned that year, minus $600. The CRA subtracts your PA from next year’s RRSP deduction limit, so people with generous workplace pensions and people who save entirely through RRSPs end up with roughly the same total tax-sheltered room.⁶

For 2026, the RRSP deduction limit is the lesser of 18% of your prior year’s earned income or $33,810, minus your PA.² A large PA can leave very little RRSP room, but any unused room carries forward indefinitely.

Vesting and What Happens If You Leave

Vesting decides when the employer’s contributions belong to you. Federal pension benefits legislation and most provinces now require immediate vesting, so the employer’s share is yours from the moment it’s contributed. Leave after a year, and those contributions leave with you.

When you leave an employer with a federally regulated pension, the plan administrator must tell you your options within 30 days, and you have at least 60 days to decide.⁷ The choices generally are:

Transfer the commuted value to a locked-in RRSP or life income fund (LIF), where it keeps growing tax-sheltered until retirement.
Transfer to your new employer’s plan, if it accepts transfers.
Use the funds to buy a deferred or immediate life annuity from an insurance company.
Take a cash refund of any portion that isn’t locked in, typically voluntary additional contributions rather than the core pension.

Provincial rules follow a similar structure, though timelines and specific options vary.

Turning the Plan Into Retirement Income

A DB plan typically pays you a monthly pension for life based on the plan’s formula. If you have a spouse, most jurisdictions require the default payment form to be a joint-and-survivor annuity, which reduces your monthly amount slightly but continues payments to your spouse after your death. Your spouse has to waive that form in writing for you to choose something else.

If you’re in a DC plan, or you’ve moved your DB commuted value into a locked-in account, the money must be used for retirement income rather than withdrawn as a lump sum. You generally convert the balance to a LIF or use it to buy an annuity. A LIF lets you draw income within annual minimum and maximum limits set by regulation.

When Locked-In Funds Can Be Unlocked

Under federal rules, you can apply to unlock funds in specific situations:⁸

Low income: up to $37,300 (50% of the 2026 YMPE of $74,600) can be unlocked, scaled down as your expected income rises. Once your expected income reaches 75% of the YMPE ($55,950), the available withdrawal drops to zero.
High medical or disability costs: up to $37,300 for qualifying expenses.
Shortened life expectancy: the full balance, with a physician’s certification.
Non-residency: the entire amount, if you’ve lived outside Canada for at least two full calendar years.
Small balance: a full cash withdrawal if the account is below the threshold set by regulation.

Each province has its own unlocking rules that differ in the details. Every request needs a formal application with supporting documentation, regardless of jurisdiction.

Survivor Benefits

What happens to your pension when you die depends on whether you have a spouse or common-law partner and whether you’ve started drawing benefits. Under most pension legislation, a surviving spouse or common-law partner is automatically entitled to a survivor benefit.⁹ For DB plans, that’s typically 60% of the pension you were receiving or would have received, continuing for the survivor’s lifetime, and some plans offer more.

If you die before retirement while in a DC plan or with funds in a locked-in account, the full value generally transfers to your spouse or common-law partner. Without a surviving spouse, the funds go to your designated beneficiary or your estate, usually as a taxable lump sum rather than as pension income. Many plans also apply a minimum benefit rule so that your estate cannot receive less than the total of your own contributions plus interest, minus anything already paid out.

Pension Income Splitting in Retirement

Once you’re receiving pension payments, you can allocate up to 50% of your eligible pension income to your spouse or common-law partner for tax purposes. The pension administrator still sends the full amount to you, but each spouse reports the allocated share on their own return, which can produce meaningful savings when one spouse has a much higher income.¹⁰

Lifetime annuity payments from an RPP qualify as eligible pension income at any age. Other retirement income, such as RRIF or RRSP annuity payments, only qualifies if you are 65 or older, or if you received the income because of a spouse’s death. Both spouses complete a joint election on their tax returns each year, and any tax withheld at source is allocated in the same proportion as the income.

If You Move to the United States

If you leave Canada for the U.S. or hold U.S. citizenship while participating in an RPP, the U.S.–Canada Income Tax Convention protects the plan’s tax-sheltered growth. Article XVIII, paragraph 7, of the treaty lets a U.S. citizen or resident who is a beneficiary of a Canadian retirement plan defer U.S. tax on income accruing inside the plan until it is actually distributed.¹¹ Since 2015, this election is automatic for most people as long as you’ve filed your U.S. returns, reported any distributions as income, and haven’t previously included the plan’s undistributed earnings on a U.S. return. The old Form 8891 is obsolete.¹²

Treaty protection doesn’t eliminate every U.S. reporting obligation. RPPs held as a participant or beneficiary are exempt from FBAR reporting on FinCEN Form 114,¹³¹⁴¹⁵¹⁶

On the Canadian side, the treaty caps withholding tax on periodic pension payments to a U.S. resident at 15% of the gross amount, and you can claim a foreign tax credit on your U.S. return for that Canadian tax to avoid being taxed twice on the same income.¹¹

1
Government of Canada. About Registered Pension Plans (RPPs)
2
Canada Revenue Agency. MP, DB, RRSP, DPSP, ALDA, TFSA Limits, YMPE and the YAMPE
3
Canada Revenue Agency. T4099 Registered Pension Plans Guide
4
Canada Revenue Agency. Line 20700 – Registered Pension Plan (RPP) Deduction
5
Department of Justice. Income Tax Act RSC 1985 c 1 (5th Supp) – Section 147.2
6
Canada Revenue Agency. Pension Adjustment Guide
7
Office of the Superintendent of Financial Institutions. Portability Options
8
Office of the Superintendent of Financial Institutions. Unlocking Funds From a Pension Plan or From a Locked-In Retirement Savings Plan
9
Government of Canada. Survivor Benefits – Pension
10
Canada Revenue Agency. Pension Income Splitting
11
IRS. United States – Canada Income Tax Convention
12
IRS. Revenue Procedure 2014-55
13
Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
14
Internal Revenue Service. Summary of FATCA Reporting for U.S. Taxpayers
15
Internal Revenue Service. About Form 3520
16
Internal Revenue Service. Failure to File the Form 3520/3520-A Penalties