In July of 2012 the Federal Government passed into law a need pension plan saving arrangement titles Pooled Registered Pension Plans (PRPP).
The intent of the new pension plan system is to give specific pension plan access to those Canadians that do not have access to traditional employer sponsored pension plans.
Here’s how the PRPP plans work:
- Individual tax payers can maintain a PRPP regardless of employment status.
- Employers have the ability, but are not required to contribute to an employee’s PRPP
- Contributions made by the employee and employer are deductible, but limits will apply.
- Contribution limits are tied to existing RRSP limits (combined).
- Income earned within the PRPP are deferred until withdrawn.
- Transfer rules for RPPs will apply to PRPPs
Contributions can be made by self employed and employed taxpayers up to the age of 71.
The total of employer and employee contributions are limited to the current RRSP/PRPP limits for the current year and any carryforwards. Over contribution penalties also apply.
Pension adjustment reporting is not required (unlike RPPs).
Contribution deadlines are similar to RRSPs.
Employers contributions are not included in the income of the employee and are required to vest immediately and indefeasibly.
The eligibility of investments contained within the plan are not the same as those for RRSPs, however the requirements do include limitations to avoid circumvention of PRPP limits and eventual minimum payments upon retirement.
Transfer and withdrawal rules for PRPPs are similar to those established for RRSPs:
- Payments from the plan must be included in the taxpayers income
- Income is eligible for the pension tax credit and pension income splitting
- Payments to non-residents will attract withholding taxes
- Transfers to other registered plans are similar to those for RPPs
- Account must be wound up by the end of the year the taxpayer turns 71
Consequence upon death
Full amount of PRRP are included in income in the year of death, unless rolled over to eligible spouse or infirm dependent child or grandchild.
To view the recent regulations related to Pooled Registered Pension Plans click here.
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