The Plans are a tax-effective way to save for retirement. Your contributions to the TRIP Plan are tax-deductible, and the matching contributions from your employer are not a taxable benefit. Your retirement funds in the Plans are sheltered from taxation until you retire or withdraw them.
Your personal retirement savings such as a Registered Retirement Savings Plan (RRSP) can also make an important contribution to your retirement income. Members should be aware that the pension earned in each tax year will reduce the member’s available ‘RRSP’ room in the following tax year.
Pension Adjustments and their Impact on ‘RRSP Room’
RRSP’s are tax sheltered savings arrangements that allow you to save for retirement on a tax-deferred basis. Your “RRSP room”, which is reported to you each year by the Canada Revenue Agency (CRA), is the amount you can contribute to your RRSP annually. CRA advises you of your RRSP room on the Notice of Assessment you receive after filing your income tax return each year.
Pension adjustments are calculated annually by your employer and reported on your T4 form. Pension adjustments are one of the factors used by the Canada Revenue Agency(CRA) to determine your RRSP contribution limit. The other factor is your earned income in the prior year.
The pension adjustment (PA) is the deemed value of the pension plan benefits earned in a year and is calculated using the following formula:
PA = (9 x pension entitlement for the year) minus $600.
Example Calculation of Pension Adjustment:
2016 Annual Salary is $57,800
Base Salary: $54,900 (2016 YMPE)
Excess Salary: $2,900 ($57,800 - $54,900)
Pension Adjustment (PA):
9 x 1.26% x $54,900 = $ 6,226
9 x 2.00% x $ 2,900 = $ 522
Less: $ 600
2016 Pension Adjustment = $6,148
Past Service Pension Adjustments
Since the TRIP Plan does not permit purchase of past service, and the Regina Police Plan is now closed, you will not receive any past service pension adjustments from either Plan. You could receive one from another plan if you purchased service from that plan. If you purchase any service earned after 1989, your PA for those years has to be adjusted retroactively. This is called a Past Service Pension Adjustment (PSPA). A PSPA ensures that your RRSP room matches what it would have been had you been a contributing member at that time.
Pension Adjustment Reversal
The pension adjustment reversal is intended to restore RRSP contribution room which may have been used while you were a member of plan.
If you leave your employer for any reason other than retirement or death, and withdraw amounts from the plan, a pension adjustment reversal is calculated at the time your benefit is paid. The pension adjustment reversal is the difference between the sum of the pension adjustments reported for all years after 1989 and the amount of termination benefits refunded from the Plan. If the benefit paid is less than the sum of the pension adjustments, the difference will be reported to CRA and the RRSP contribution room will be restored.