Changes to three public service pension plans that affect RRSP deduction limits

Questions and Answers

Changes to the Public Service (PS), the Canadian Forces (CF), and the Royal Canadian Mounted Police (RCMP) pension plans were announced in the Government of Canada May 2006 Budget, and will be implemented beginning in 2008. These changes lower the reduction formula used to calculate pension benefit amounts under the three public service pension plans, beginning in 2008. The lower reduction formula will increase pension benefits, and will reduce the amount plan members can contribute to their RRSP in the 2009 tax year. For information about the changes to the pension plans, please see Questions and Answers on the Web site of the Treasury Board of Canada Secretariat.

1. How will these changes affect pension plans members?
2. What is a pension adjustment (PA)?
3. How does the PA affect my RRSP contributions?
4. What is a past service pension adjustment (PSPA)?
5. How does the PSPA affect my RRSP contributions?
6. Where can I get information about my PSPA?
7. Do I need to file the T215 information slip with my income tax return?
8. I have never made an RRSP contribution. How will the PA or PSPA impact me?
9. Where can I find information about my 2009 RRSP deduction limit?
10. How can I calculate an estimate of my RRSP deduction limit for the 2009 tax year?
11. What is an “unused” RRSP contribution?
12. What will happen if I have excess contributions to an RRSP?
13. How can I avoid having excess RRSP contributions for the 2009 tax year?
14. What can I do if I have excess RRSP contributions in the 2009 tax year?
15. What is a “negative” RRSP deduction limit?
16. Where can I find more information?

Q.1 How will these changes affect pension plans members?

A.1 The changes the public service pension plans will affect PS, CF, and RCMP pension plan members as follows:

• If you are a member of one of the three public sector pension plans, the change to the reduction formula will increase your pension adjustment (PA) for 2008 and future years. As a result, the amount that you can contribute to registered retirement savings plans (RRSP) in the 2009 tax year will be reduced.
• If you reach age 65 before January 1, 2008, the new reduction rate will not apply. Your pension plan benefit amount will not be affected, and your RRSP deduction limit will not be reduced as a result of the new reduction factor.
• If you will reach age 65 after 2007, the lower reduction factor that will be used to calculate your pension benefits will increase the value of your accrued benefits. Because the value of your accrued benefits increases, your PA reported since 1990 up to 2007 will be revised, and the difference will be reported in 2008 as a past service pension adjustment (PSPA). This PSPA will further reduce the amount that you can contribute to an RRSP in the 2009 tax year. This includes active members and retirees who have opted for a deferred annuity or are receiving an immediate annuity or an annual allowance.

Q.2 What is a pension adjustment (PA)?

A.2 A PA is an annual amount calculated by your pension plan administrator on the basis of contributions made or pension benefits earned during the year under a pension plan or a deferred profit sharing plan. The PA determines the amount that a plan member can contribute to an RRSP.

Q.3 How does the PA affect my RRSP contributions?

A.3 If you contribute to an RRSP, your PA is important in determining the amount of contributions you can make to your RRSP and the amount you can deduct from your net income when calculating the income tax you will pay or the refund you will receive for the following year. If you want to know how your PA is calculated, contact your pension plan administrator.

Q.4 What is a past service pension adjustment (PSPA)?

A.4 A PSPA is an amount your pension plan administrator calculates when benefits relating to a previous period of pensionable service are improved, or when you are credited with a new period of pensionable past service. A PSPA determines the amount that a plan member can contribute to an RRSP. If you want to know how your PSPA is calculated, contact your pension plan administrator.

Q.5 How does the PSPA affect my RRSP contributions?

A.5 If you will reach age 65 after 2007, your pension plan administrator will calculate a PSPA. The lower reduction factor that will be used to calculate your pension benefits will increase the value of your accrued benefits. Because the value of your accrued benefits increases, the PAs reported since 1990 to 2007 must be revised. The sum of the additional pension credits will be reported as a higher PSPA in 2008. This will further reduce the amount you can contribute to your RRSP in the 2009 tax year. If you want to know how your PSPA is calculated, contact your pension plan administrator.

Q.6 Where can I get information about my PSPA?

A.6 Your pension plan administrator will calculate a PSPA amount for all pension plan members who will reach age 65 after 2007. You will receive a T215 slip, Past Service Pension Adjustment (PSPA) Exempt from Certification, with your PSPA amount shown in Box 2. If you want to know how your PSPA is calculated, contact your plan administrator.

Q.7 Do I need to file the T215 information slip with my income tax return?

A.7 No. You do not need to file the T215 information slip with your tax return.

This information slip is for your files only. It tells you the amount by which your RRSP deduction limit for the 2009 tax year will be further reduced as a result of the lower reduction formula being applied.

Q.8 I have never made an RRSP contribution. How will the PA or PSPA impact me?

A.8 If you have never contributed to an RRSP, and don't intend to do so in the future, the PA and PSPA will have no fiscal impact for you. If you decide to contribute to an RRSP in 2009 or future years, your PA or PSPA will determine your RRSP deduction limit. Your pension plan administrator will send you a T215 information slip that will tell you the amount by which your RRSP deduction limit will be reduced for the 2009 tax year.

Q.9 Where can I find information about my 2009 RRSP deduction limit?

A.9 Information about your RRSP deduction limit will be indicated on your 2008 Notice of Assessment that the Canada Revenue Agency will issue to you in the spring of 2009. You can also get information about your RRSP deduction limit online at www.cra.gc.ca/myaccount, or by calling your tax office at 1-800-959-8281. As well, you can use our automated Tax Information Phone Service (T.I.P.S.) by calling 1-800-267-6999.

Q.10 How can I calculate an estimate of my RRSP deduction limit for the 2009 tax year?

A.10 To calculate an estimate of your RRSP deduction limit for the 2009 tax year, you will need the following information:

• Your 2008 RRSP deduction limit statement. Your unused RRSP deduction limit to be carried over to 2009.
• An estimate of your 2008 earned income, such as, employment income, rental income/losses, minus employment expenses, union dues, and other such eligible expenses.
• Your 2008 PSPA reported by your pension plan administrator on the T215 slip, Past Service Pension Adjustment (PSPA) Exempt from Certification.
• Your T4 slip from your employer. If you have not received your 2008 T4 slip from your employer, assume a slightly higher PA for 2008 than the one reported for 2007.

Because this calculation is an estimate, you may want to consider decreasing your calculated RRSP deduction limit amount, or wait for your 2008 Notice of Assessment.

For more information on how to calculate your 2009 RRSP deduction limit, refer to the chart in Chapter 2 of the T4040 Guide, RRSPS and Other Registered Plans for Retirement 2006.

Q.11 What is an “unused” RRSP contribution?

A.11 You will have an unused RRSP contribution if you did not deduct all or part of your RRSP contributions in the year you made them, or in the preceding year. If your unused contributions from prior years and your current calendar year contributions are more than your RRSP deduction limit for the current year plus $2,000, you will have excess RRSP contributions.

Q.12 What will happen if I have excess contributions to an RRSP?

A.12 Generally, you will be considered to have made excess contributions to an RRSP if your unused contributions from prior years and your current calendar year contributions are more than your RRSP deduction limit for the current year plus $2,000.

A tax of 1% per month may apply to certain excess contributions you made in 1991 and later years that are left in the plan. To avoid this tax, you can withdraw the excess RRSP contributions. The excess RRSP amount you withdraw may be taxable.

More information about tax on excess RRSP contributions and the withdrawal of unused RRSP contributions can be found in Chapter 2 of the T4040 Guide, RRSPS and Other Registered Plans for Retirement 2006.

Q.13 How can I avoid having excess RRSP contributions for the 2009 tax year?

A.13 Your 2008 PSPA reported by your pension plan administrator on the T215 slip, Past Service Pension Adjustment (PSPA) Exempt from Certification, will show your reduced RRSP deduction limit for the 2009 tax year. If you have not received your T215 slip or T4 slip and you want to estimate your RRSP deduction limit for the 2009 tax year, see Q10.

Q.14 What can I do if I have excess RRSP contributions in the 2009 tax year?

A.14 You will have excess RRSP contributions in 2009 if you did not deduct all or part of your RRSP contributions in the year you made them, or in the preceding year, and your unused RRSP contributions from previous years are higher than the 2009 RRSP deduction limit amount you calculated plus $2,000. Please note that your RRSP deduction limit could be a negative amount against which the $2,000 applies (See Q15).

If the unused contributions are left in the plan a tax of 1% per month may apply to certain excess contributions you made in 1991 and later years. To avoid this tax, you can withdraw the excess RRSP contributions. The excess RRSP amount you withdraw may be taxable.

Q.15 What is a “negative” RRSP deduction limit?

A.15 Your PSPA may reduce your RRSP deduction to a negative amount. A “negative” RRSP deduction limit means that you cannot deduct contributions to an RRSP in the 2009 tax year, other than deductible transfers, until your RRSP deduction limit is restored to a positive amount. Your RRSP deduction limit may be restored to a positive amount in future years if you accumulate earned income. There is no tax penalty for having a negative RRSP deduction limit.

Q.16 Where can I find more information?

A.16 Guide T4040, RRSPS and Other Registered Plans for Retirement 2006, provides detailed information about RRSPs, such as how to make contributions to retirement savings plans, how to report contribution amounts and transfer an amount between plans; general information about PAs and PSPAs, and how these amounts are used to determine how much you can contribute to an RRSP.

My Account is a secure online service that gives you the convenience and flexibility of viewing and managing your personalized information, including your Registered Retirement Savings Plan (RRSP).

The Tax Information Phone Service (T.I.P.S.) is an automated phone service that provides you with general and personal tax information. You can call T.I.P.S. to find out the amount of RRSP contributions you can deduct on your current-year return and, if it applies, any unused contributions available for you to claim. RRSP service is available from mid-September to April 30. The T.I.P.S. telephone number is 1-800-267-6999.