ELI5 summary
The formula
Your new RRSP room for a year is:
the lesser of 18% of the previous year’s earned income and the annual dollar limit, minus the previous year’s pension adjustment (PA), plus any pension adjustment reversal (PAR).
For 2026 the dollar limit is $33,810. Unused room from earlier years is added on top. The result is the RRSP deduction limit printed on your Notice of Assessment and shown in CRA My Account.
If you have no workplace pension, your PA is zero and the formula reduces to 18% of earned income up to the limit. Everything below is about what happens when the PA is not zero.
Where to find your pension adjustment
Your employer reports the PA in box 52 of your T4 slip. It is not income and you do not enter it anywhere on your return; the CRA uses it to work out next year’s room. If you had more than one employer with a pension plan, each T4 carries its own PA and they are added together.
Defined benefit plans: nine times what you earned, minus $600
A defined benefit (DB) plan promises a pension based on salary and years of service, such as 1.5% of salary for each year worked. Because the value of that promise is not a contribution you can see, the PA uses a fixed formula:
PA = 9 × the annual pension you earned this year − $600
The factor of nine is the tax system’s estimate of what it costs to fund one dollar of lifetime pension income.
Worked example
Jordan earns $90,000 in a DB plan that accrues 1.5% of salary per year of service. This year Jordan earned a pension of 1.5% × $90,000 = $1,350 a year, payable at retirement. The PA is 9 × $1,350 − $600 = $11,550. Next year’s new RRSP room is 18% × $90,000 − $11,550 = $16,200 − $11,550 = $4,650.
Members of generous DB plans often have very little RRSP room. That is by design: the pension is already doing the saving.
Defined contribution plans: the total contributed
A defined contribution (DC) plan has individual accounts, so the PA is simply everything that went in for the year: your contributions plus your employer’s.
Worked example
Priya earns $90,000 and contributes 5% to her DC plan, with her employer matching 5%. Total contributions are $9,000, so her PA is $9,000. Her new RRSP room is $16,200 − $9,000 = $7,200. Deferred profit sharing plans (DPSPs) work the same way: the employer’s contributions are the PA.
Group RRSPs are not pension plans
Many employers offer a group RRSP, often with a matching contribution, instead of a pension. A group RRSP is simply your own RRSP administered through work. There is no PA, but every contribution, including the employer’s match, uses your RRSP room directly, just as if you had deposited it yourself. The employer’s portion is also reported as a taxable benefit on your T4, which the RRSP deduction then offsets.
This is the most common cause of accidental RRSP over-contributions: someone makes a lump-sum contribution in February based on the limit on their Notice of Assessment, forgetting that payroll contributions have been using the same room all year. See over-contribution penalties for the fix.
Past service pension adjustments
If you buy back past service in a DB plan, for example for a leave or an earlier period of employment, the plan reports a past service pension adjustment (PSPA). A PSPA reduces your RRSP room for the year the buyback happens. Where the PSPA is larger than your available room, the buyback may need CRA certification before it can proceed, and you may have to withdraw RRSP funds to make room.
Pension adjustment reversals: room given back
The PA formula assumes you will stay in a DB plan long enough to receive the pension it measures. If you leave early and take a commuted value or refund that is worth less than the PAs reported over the years, the difference is restored as a pension adjustment reversal (PAR). The plan reports it on a T10 slip, and the CRA adds it to your RRSP deduction limit.
Worked example
Alex worked four years in a DB plan, and the plan reported PAs totalling $40,000 over that time. On leaving, Alex’s termination benefit, a commuted value transferred to a locked-in account, was $28,000. The shortfall of about $12,000 is reported as a PAR and added to Alex’s RRSP room for the year Alex left.
Show the math
New room(Y) = min(18% × earned income(Y−1), RRSP dollar limit(Y)) − PA(Y−1) − net PSPA(Y) + PAR(Y). DB PA = Σ over benefit provisions of (9 × benefit entitlement accrued in the year) − $600, floored at zero. DC PA = member + employer contributions allocated in the year. DPSP PA = employer contributions allocated in the year. The RRSP dollar limit for year Y equals the money purchase limit for Y−1. Unused room carries forward indefinitely until the end of the year the annuitant turns 71.
What this means in practice
- Check box 52 before planning RRSP contributions. Your room may be much smaller than 18% of your salary.
- Do not double-count group RRSP contributions. Subtract what payroll has already contributed since your last Notice of Assessment.
- If you have little RRSP room, look at the TFSA. TFSA room does not depend on income or pensions, so it is often the next place for extra savings. See RRSP or TFSA?
- Watch for a T10 after changing jobs. A PAR can create a meaningful amount of new room in the year you leave a DB plan.
Key takeaways
- New RRSP room = 18% of last year’s earned income, capped, minus last year’s PA, plus any PAR.
- DB plans: PA = 9 × pension earned − $600. DC plans and DPSPs: PA = total contributions.
- Group RRSPs have no PA but use your own room, employer match included.
- Leaving a DB plan early can restore room through a PAR on a T10 slip.