Pension adjustment

A pension adjustment (PA) is a calculated value for employers who participate in a registered pension plan (RPP) or deferred profit sharing plan (DPSP). It is reported on an employee's T4 slip, in box 52. Generally, the PA reduces your Registered Retirement Savings Plan (RRSP) deduction limit for the following year.

Basic concept
Tax‑assisted retirement savings arrangements are designed and administered to provide income to individuals at retirement. Using these arrangements, Canadians can get tax assistance to build their retirement savings. The system is based on an overall limit of 18% of an individual's earned income to a dollar maximum. The overall limit applies to total retirement savings under employer‑sponsored registered pension plans (RPPs), deferred profit sharing plans (DPSPs), and RRSPs.

Each DPSP and each provision of an RPP produce a pension credit for the member. The pension credit is a measure of the value of the benefit earned or accrued during the calendar year. The method you use to calculate pension credits depends on the type of plan and provision. A member's pension adjustment (PA) is the total of that member's pension credits from all plans in which the member's employer participates in the year, excluding RRSPs. The PA reduces the maximum amount that a member can deduct for contributions to an RRSP for the following year. The first year in which PAs had to be calculated was 1990. There are no PAs for earlier years. The first year that RRSP deduction room was reduced by PAs was 1991.

Pension adjustment reversal
A pension adjustment reversal (PAR) is an amount that cancels a portion or all previous pension adjustments and increases the RRSP deduction limit. This applies to a member of a registered pension plan or deferred profit sharing plan who terminates employment after 1996 and transfers benefits out of the plan.

The PAR is equal to the sum of the pension adjustments for each year of participation since 1990 in the registered pension plan, less lump sum payments in respect of pension benefits earned since 1990 transferred to a locked-in RRSP.