# Understanding pension adjustment on RRSP



## emperor (Jul 24, 2011)

I have an issue with my company pension. 

At first it was 3 dollars an hour, then they lost a lot of money and raised it to 6 dollars an hour, then they lost more money and raised it to 9 dollars an hour and only 6 goes in the pension fund.

I want to plan my own retirement since I don't trust my company.

I currently get no RRSP room after calculating my pension adjustment, which seems straight forward except people at work say they take their returns to an accountant and their RRSP contribution room is still growing each year and is not being affected by the company pension. What am I missing?

Also is there anyway I can pull this money out of the pension and put it in something else?


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## Daniel A. (Mar 20, 2011)

You have not provided any information that anyone could offer a comment on.


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## Spudd (Oct 11, 2011)

I don't understand at all what you're saying about the $/hr, and I have no idea how your co-workers would be able to get around the pension adjustment thing. 

As to whether you can take it out or not, if it's a defined benefit, you most likely cannot. If it's a defined contribution you might be able to. Your HR department should be able to answer these questions for you.


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## MoneyGal (Apr 24, 2009)

My memory on the rationale for this is hazy, but everyone - even people in DB plans - gets a minimum of $600 of RRSP contribution room per year. This room, if not used, would "grow" each year and can be carried forward indefinitely.


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## Echo (Apr 1, 2011)

MoneyGal said:


> My memory on the rationale for this is hazy, but everyone - even people in DB plans - gets a minimum of $600 of RRSP contribution room per year. This room, if not used, would "grow" each year and can be carried forward indefinitely.


That's my understanding as well.

PA = [(9 x benefit entitlement) - $600]

For example, if you earned $75,000 last year and belong to a 2% defined benefit pension plan, your PA will be (9 x (2% of $75,000) – $600] or $12,900.


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## Sampson (Apr 3, 2009)

emperor said:


> Also is there anyway I can pull this money out of the pension and put it in something else?


No.


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## Mall Guy (Sep 14, 2011)

Echo said:


> That's my understanding as well.
> 
> PA = [(9 x benefit entitlement) - $600]
> 
> For example, if you earned $75,000 last year and belong to a 2% defined benefit pension plan, your PA will be (9 x (2% of $75,000) – $600] or $12,900.


For DB yes, for DC plans, no


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## Eclectic12 (Oct 20, 2010)

emperor said:


> I have an issue with my company pension.
> 
> At first it was 3 dollars an hour, then they lost a lot of money and raised it to 6 dollars an hour, then they lost more money and raised it to 9 dollars an hour and only 6 goes in the pension fund.
> 
> ...


What type of pension? 
Is it a defined benefit (DB) or defined contribution (DC)? 
Is a group RRSP that your employer also contributes to?

I've never heard of a pension that used "per hour" - let alone one where not all of the money goes into the pension.


RRSP contribution room = 18% of your previous year's "Earned Income" to a maximum of $22,450 (2011) 
plus any unused contributions room carried forward from previous years
minus Pension Adjustment (PA) 
minus RRSP contributions made during the year


As for your co-workers - their RRSP room might be growing by the minimum $600 or by a small amount but they will affected by a pension that has a PA. 

The accountant may be pointing out that the "Earned Income" is not being calculated correctly - which would affect the RRSP room. For example, if the individual forgot to report some income, the RRSP room calculated could be under what it should be.


As for withdrawing the money out of the pension, the answer is likely that it can't be withdrawn. However, a transfer to say a Locked-In RRSP (LIRA) where you control what it is invested in and the costs, *may* be possible.

A DB pension usually needs one to quit for there to be an option to leave the plan and transferring the pension money to a LIRA of one's choice. 

DC pensions and Group RRSPs that I've seen the details to are usually similar but there have been a few that allowed a transfer without quitting. If it does allow this, check for transfer fees.


Bottom line is that getting a copy of the plan and access to someone who has the details is probably your best way to find out.


Cheers


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## Eclectic12 (Oct 20, 2010)

Mall Guy said:


> For DB yes, for DC plans, no


+1 ... the DC plan will have PA where the PA = DC pension contributions.


So the DC plan had $5K contributed to it, the PA will be $5K and the RRSP contribution room will be reduced by PA of $5K.

http://www.milliondollarjourney.com/what-is-the-pension-adjustment-pa.htm


This is because the DC plan makes no promises about how much one benefit from the DC plan. So it is treated similarly to making an RRSP contribution.



Cheers


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## emperor (Jul 24, 2011)

Thank you for the information, the person I talked to at work must just be confused, I talked to other coworkers and they are saying the same thing as the people on this board.

Just wanted to make sure there was no way to get rrsp room or remove myself from the pension.


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