Past Service Pension Adjustments
As a member of a Registered Pension Plan (RPP), the benefits you earn under SFPP are regulated by the Income Tax Act.
For every year you are active in SFPP, your employer will report a Pension Adjustment (PA). This represents the value assigned by Canada Revenue Agency (CRA) to the increase in your SFPP benefit entitlement. A PA will reduce your Registered Retirement Savings Plan (RRSP) contribution room for the following year.
If you buy post-1989 service, a Past Service Pension Adjustment (PSPA) will be associated with the prior service you are buying. This PSPA represents the value of the additional pension you purchased and will reduce your existing RRSP contribution room.
To help you decide whether to buy a period of service, we'll provide you with an estimate of your PSPA in your Buyback Proposal.
Effect on RRSP Contribution Room
A PSPA has the same effect on your RRSP contribution room as making an RRSP contribution. CRA will only certify the PSPA if it's less than your total available RRSP contribution room, although there is an $8,000 over-limit amount available if you need it.
If the PSPA cannot be certified by CRA, you will not be able to proceed with buying the service unless you are able to do a qualifying transfer or a qualifying withdrawal, both of which we cover in the section below. You can also choose to purchase only as much service as you have RRSP contribution room for.
Prior service can be bought using funds from an existing tax-sheltered vehicle such as an RRSP or Locked-In Retirement Account (LIRA). This type of transaction is called a qualifying transfer and will reduce your PSPA by the value of the funds transferred from your RRSP or LIRA. This means you can reduce or even eliminate the amount of RRSP contribution room taken up by buying prior service. If you wish to make a qualifying transfer, be sure to indicate the amount you will be transferring from your RRSP or LIRA on your Buyback Election.
Timing is Important
We must receive the funds from a qualifying transfer before any other payment, and before the payment due date shown on your Buyback Proposal.
We will adjust the PSPA before sending it to CRA which will help you maximize your RRSP contribution room. If any other payment is received by us before the transfer of registered funds, the full PSPA will be reported to CRA.
It can take time to complete a qualifying transfer, so you will want to speak to your financial institution or advisor as soon as possible once you have decided to do this.
If your existing RRSP contribution room is higher than the PSPA (less any qualifying transfers), CRA will certify the PSPA and reduce your RRSP contribution room accordingly. We will notify you once your PSPA has been certified.
Having Enough RRSP Contribution Room
If the PSPA cannot be certified because it is higher than your RRSP contribution room and you have chosen not to do a qualifying transfer, CRA will contact you and supply you with the information you will need to complete a qualifying withdrawal. This means you would need to remove the required amount from your RRSPs and pay tax on the withdrawal.
If you cannot complete or do not wish to complete a qualifying withdrawal, you will not be able to proceed with buying the service. For more information about qualifying withdrawals, please contact CRA.
If you know that you will not be buying the full period of prior service when you receive your Buyback Proposal, please contact us as soon as possible for more information on how to buy a portion of your service. Reducing the amount of service you will be buying before you have started to make payments may result in a smaller PSPA.
If you have already started to make payments towards your prior service and decide to buy only a portion of the service covered in your Buyback Proposal, the PSPA will not be prorated. We will report your PSPA to CRA after your first payment is received and will not be able to amend the PSPA once it has been certified.
If, in the future, you decide to purchase the remaining service, the PSPA calculated at that time will be reduced by the PSPA already filed for that period.