RPP vs. RRSP: Understanding the key differences

If you're saving for retirement in Canada, chances are you've heard of two big players: the Registered Pension Plan (RPP) and the Registered Retirement Savings Plan (RRSP, called an RSP at Tangerine). Both are powerful ways to build retirement savings, and how you manage them can shape your post-employment years.

But here's where it gets tricky: maybe you've got a pension at work and wonder if you also need an RSP. And what about group RRSPs—where do they fit in?

Understanding how each plan works can help you make smarter moves now so "future you" can plan for the retirement lifestyle you want. Let's break it down (without boring you to sleep).

What is a Registered Pension Plan (RPP)?

A Registered Pension Plan is a workplace pension set up by your employer or union to provide you with an income once you retire. The plan is registered with the Canada Revenue Agency (CRA), and contributions from you and your employer are tax-deductible. Even better, the money inside grows tax-free until you start cashing it out.

Most of the time, contributions come right off your paycheque, often with your employer matching what you put in. That steady drip (plus investment growth) can be a source of income once you retire. However, you usually can't tap into the pension until you're at least 55.

There are two main types of RPPs:

Defined contribution plans

A defined contribution (DC) plan is a workplace pension whereby the inputs are fixed, but the outcome isn't. The "contribution" part is defined: you and your employer typically chip in a set amount each year (usually a percentage of your salary). But the retirement income part? That's up in the air.

The size of your nest egg at retirement depends on two things: how much went in, and the risk and return of your investments. There are no guarantees. If markets fall or you outlive your savings, you are responsible for bridging that gap.

Most of the time, contributions come right off your paycheque, and many employers will match what you put in—often up to a set percentage. The more you contribute, the more they do too, which can make a real difference over time. You may get a say in how the money is invested, such as selecting between conservative, balanced or growth options. 

At retirement, you choose how to turn savings into income. Common options include:

• Buying an annuity for guaranteed lifetime payments;
• Transferring to a locked-in RSP or Registered Retirement Income Fund (RRIF, called a RIF at Tangerine); or
• A combination of both approaches.

 If you leave your job before retirement, your savings don't vanish (whew!). Often, the fund can be transferred into a locked-in retirement account (LIRA) until you're eligible to use it.

Defined benefit plans

This is the type of pension your parents or grandparents likely raved about. Unlike a DC plan, where your retirement income depends on markets, a defined benefit (DB) plan promises you a predictable pension for life. Here's how it works:

• Both you and your employer contribute to a pooled fund.
• The employer (or plan administrator) manages the investments. You don't have to lift a finger.
• Your pension is calculated using a formula, usually based on salary and years of service.

At retirement, you'll have a reliable income stream to count on. Some DB plans are even indexed to inflation, meaning your payments go up over time so your buying power doesn't shrink.

The difference: the risk sits on the employer's shoulders. Unlike DC plans, they're on the hook to make sure the fund has enough to pay everyone, no matter how the investments perform.

What is an RRSP?

A Registered Retirement Savings Plan is a special account that the federal government offers to help Canadians save for retirement. Think of it like a federally approved backpack you carry through your working years — one that comes with perks:

• Flexible contributions. Add money with one-off contributions, automatic transfers, an annual lump sum and/or regular payroll deductions whenever you like.

• Tax-deductible contributions. Payroll contributions lower your taxable income, which could mean paying less tax or even snagging a refund.

• Money grows tax-deferred while inside the account. No tax bills as long as the money stays zipped up in the RRSP account. This can help your savings grow through the magic of compound growth.

• Tax-deferred savings. Withdrawals are taxed as income. Since most retirees earn less than they did during their working years, the taxes are usually lighter when withdrawals happen as planned during retirement.

• Carry-forward room. Didn't hit the max this year? Unused contribution space rolls forward to future years, so you can catch up later.

• Flexible investments: Fill your RRSP tote with a wide range of investments, such as GICs, stocks, bonds, mutual funds and ETFs. Tangerine provides RSP Savings Accounts, RSP GICs, and RSP Investment Funds.

• Save for a spouse. The higher-earning spouse can contribute to a spousal RRSP to balance retirement savings and potentially reduce the household tax bill when you make RRSP/RRIF withdrawals in retirement.

How does an RRSP work?

Once your RRSP is set up, there are a few rules to note:

• Contribution limit. How much you can put into your RSP annually depends on your income from the previous year, up to a maximum amount set by the federal government. For your 2025 taxes, you can contribute up to 18% of your previous year's income, but not more than $32,490. Use CRA MyAccount or your Notice of Assessment to check your limit.

• Contribution deadline. Contributions made in the first 60 days of the calendar year can be deducted from the previous year's income. However, the deadline may vary if the 60^th day falls on a weekend or during a leap year. Check the date every year.

• Age limit: All Canadian residents with a Social Insurance Number (SIN) under the age of 71 who earn income are eligible. You must convert your RRSP into a RRIF or annuity by December 31 of the year you turn 71.

• Withdrawals. Withdrawals are taxed as income. Exceptions are the Home Buyers' Plan (HBP) or Lifelong Learning Plan (LLP), where you can withdraw tax-free and repay later. 

• No do-overs. Unlike a TFSA, withdrawn RRSP room is gone forever (unless under the HBP or LLP).
   

What is a group RRSP?

A group RRSP (or employer-sponsored plan) is a workplace version of a regular RRSP. You own the account, but it's set up through your employer. Contributions are pulled right off your paycheque — automatic, easy and often sweetened by your employer's match.

Like a regular RRSP, contributions are tax-deductible, and growth is tax-deferred until withdrawal. You can also choose how your money is invested, although the menu of options is usually leaner.

If you leave your job, your savings stay yours. You can:

• Transfer to a personal RRSP or RRIF
• Buy an annuity
• Cash out (warning: taxed immediately!)

 

Additional rules and requirements for RRSPs and RPPs

Beyond the basics, there are a few extra rules and quirks with RRSPs and RPPs that can catch people off guard. Keep these on your radar:

Eligibility

• RRSPs: Any Canadian resident under 71 with a valid Social Insurance Number and a prior tax return with earned income can open one.

• RPPs: Only available through your employer or union. Some require a waiting period before you can join.

Deadlines

• RRSPs: You can contribute up to 60 days after the end of the calendar year (usually January 1 to March 1) for the previous tax year. Must convert by December 31 of the year you turn 71 (to RRIF or annuity).

• RPPs: Pension benefits typically must begin by a certain age (often around 71), but the rules depend on your plan.

Benefit formulas

• RRSPs: No formula. Income depends on how much you contributed, investment returns and withdrawal timing.

• RPPs: DB uses a formula (salary × years of service × %). DC depends on contributions and investment performance.

Leaving your job

• RRSPs: No change — always yours.

• RPPs: Employer contributions may come with a vesting period — the length of time you must stay in the job before those dollars are fully yours. Some plans vest immediately; others make you wait. Leave too soon, and you could forfeit some (or all!) of your employer's contributions.

Tax considerations for RRSPs and RPPs

Both RRSPs and RPPs let you save on taxes today and delay the bill until withdrawal. The key differences lie in how contributions affect your taxable income, how withdrawals are taxed, and what happens at death.

RRSP tax treatment

• Contributions: Subject to your contribution limit, what you put into an RRSP reduces your taxable income for that year. You get two contribution receipts: one for March to December contributions, and another for the first 60 days of the following year.

• Growth: Tax-free while the funds remain in the plan.

• Withdrawals: Taxed as income when withdrawn.

• At death: The remaining balance is usually added to your final tax return, with taxes paid by your estate. However, a spouse or dependent child can often roll it into their own plan to defer paying the tax.

RPP tax treatment

• Contributions: Automatically deducted from your paycheque and reported on your T4 or T4A slip.

•  Growth: Tax-deferred while the funds remain in the plan. 

• Withdrawals: Taxed as income. Withholding tax is applied automatically by the plan administrator, and the full amount must be reported on your tax return.

•  At death: Survivor benefits vary by plan. Your spouse may receive a lump sum or ongoing payments, with tax withheld at payment.

RRSP and RPP: Can you have both?

Short answer? Yep! And many Canadians do. If you're lucky enough to have a workplace pension, you can still open and contribute to your own RRSP—a total boss move. 

The upside of having both is balance:

• RPP: Steady, automatic savings (plus possible employer matching!).
• RRSP: Total control over how much (within CRA limits) and when to contribute, what to invest in, and withdrawal timing. 

Together, they work like a retirement tag team: pensions provide predictable income, while RRSPs add flexibility and may help you retire earlier. Just remember: RPP contributions reduce your RRSP room, so keep an eye on your limit to avoid overcontributing.

Final thoughts

When it comes to building your retirement nest egg, there's no one-size-fits-all solution. RRSPs give you freedom and flexibility. RPPs provide you with structure, and in some cases, guaranteed income for life. The real power comes when you use both together.

 The goal isn't just saving — it's saving smart. Understanding how RRSPs and RPPs complement each other may help cut your tax bill, grow your wealth, and build the #RichLife in retirement you've always dreamed about.

Ready to take the next step? Learn more about how an RRSP can fit into your plan with Tangerine's RSP options.