Impact on RRSP Contribution Room

Credit earned through Ontario Teachers' is linked to RRSP contribution room. The greater your pension benefit, the less room you'll have available to contribute to an RRSP. The connection between pension benefits and RRSP room is one way the Canada Revenue Agency (CRA) ensures equity for Canadians saving for retirement through various tax-sheltered arrangements.

For this reason, the CRA limits how much you can save for retirement each year on a tax-sheltered basis. The limit, which the CRA has currently set at 18% of your income, applies to any personal RRSP contributions you make as well as any pension benefits you earn. To determine the value of your tax-sheltered savings, the CRA places a dollar value on the pension benefits you earn in a year. This assessed value of your pension is referred to as your pension adjustment (PA) or past service pension adjustment (PSPA).

When you buy back credit, it triggers us to issue a PA or PSPA for you. Your future earned RRSP contribution room will be subsequently reduced by the amount of your PA, but it cannot make your existing room negative. Your existing RRSP contribution room will be reduced by the amount of your PSPA.

It's important to note that PAs and PSPAs are based on the value of the pension benefit you'll receive, not the cost of your buyback.