What is a Pooled Registered Pension Plan (PRPP)?

Pool Registered Savings Plan

A Pooled Registered Pension Plan (PRPP) is a type of pension plan for employees or self-employed owners who do not have the option to participate in a pension plan at their workplace. The plans are offered through financial institutions and typically target employees of small businesses whose employers do not offer any type of retirement savings plan.

Who Can Open a Pooled Registered Penson Plan (PRPP)?

To be eligible to open a PRPP, you must have a valid Canadian social insurance number and meet one of the following conditions;

  • You are employed or self-employed in the Northwest Territories, Nunavut, or Yukon
  • You work in a federally regulated business or industry and your employer participates in a PRPP
  • The province you live in has the required PRPP legislation

How Much Can You Contribute to a Pooled Registered Pension Plan (PRPP)?

Similar to a Group RRSP plan, the total contributions made to a PRPP are limited to the individual’s RRSP contribution limit. This includes contributions made by employer and employee. Contributions made by the employer to the employee’s plan are not included in the employee’s income and are deductible by the employer.

What are some benefits and disadvantages of PRPP?

The biggest advantage offered by Pool Registered Plan is they provide a saving pension vehicle for employees of small businesses or self-employed individuals who cannot participate in traditional pension plans. When you join a PRPP you also benefit from economy of scale, which can lead to the financial institution offering lower-cost investment products.

Investment within a PRPP can grow tax-free until funds are withdrawn from the plan similar to an RRSP. Contributions made by the employee are also tax-deductible and plans are portable (you can move it if you leave your current employer).

One of the disadvantages of a PRPP includes the fact that it’s not a mandatory plan for employers to offer to their employees. Furthermore, employers are not required to make any contribution to a PRPP if a plan is established and available to employees. Another disadvantage is the retirement income you have will depend on how well your investments have done. The income generated by your investment by the time you reach retirement might not be sufficient to meet your retirement needs and unlike defined benefit pension plans, the employer isn’t required to fund the shortful.

What Happens if I leave or quit the Pool Registered Pension Plan (PRPP)?

If you leave a pooled registered pension plan you can stop contributions, however, you will be unable to withdraw the funds already in the plan. PRPP is designed to be a retirement vehicle and as such funds are locked in and cannot be withdrawn until retirement. This will vary by the province as to the age when you might be able to withdraw the funds but generally this might be around age 55 or older.

Should You Participate in a Pool Registered Plan (PRPP)?

If you work for a small business or are self-employed and qualify to participate in a Pool Registered Plan, it might be worth considering. If your employer offers a contribution match to such a plan, I highly recommend joining as the additional contribution along with your own contribution will increase the potential retirement savings you might have upon retirement.  However, if your employer offers no match, some of the advantages this plan offer might not be as great in a marketplace of rob-advising and lower investment products that are available via ETF and index funds.

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