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Wealth update – What is a Pension Adjustment Reversal - PAR

Here’s an easy way to explain the Pension Adjustment Reversal or PAR to your clients.

Consider an employee who is a member of a Group RRSP at work. Under the terms of their group plan, they are contributing 2% of their salary and the company is matching.

Each year the group RRSP administrator will report to CRA the amount in total contributions to the employee’s group RRSP.

Let’s also suppose the employer’s contributions vest after two years.

For example:

  • Employee earns $50,000 per year

  • Employee contributions are $1,000

  • Employer contributions are $1,000

  • Each year a $2,000 RRSP contribution is reported to CRA

Now, after 5 years, the employee decides to resign.

  • Over the 5 years, $10,000 has been reported to CRA in total RRSP contributions

  • The employer’s contributions in years 4 and 5 have not vested

  • But the employer’s contributions for those years ($2,000) have been reported to CRA

This $2,000 will be added back to the employee’s total RRSP contribution room. And this is the Pension Adjustment Reversal or PAR.

The math gets a bit more complicated when it’s an RPP, DPSP or defined benefit pension plan, but the principal is the same.

So, if you have clients who are moving jobs, make sure to inquire about some additional RRSP room that may have been created for them via the PAR.

As always, we look forward to your comments.

PS The 2024 TFSA contribution limit has been raised to $7,000.

Scott Edgington

Director, Advanced Planning, Wealth

Qualified Financial Services

Jim Lyons

Regional Vice President, Business Development - Wealth

Qualified Financial Services

Kyle Gilbert

Inside Business Development Specialist - Wealth

Qualified Financial Services

Gordon Baker

Director, Business Development, Wealth Atlantic Canada

Qualified Financial Services

This communication reflects the views of Qualified Financial Services Inc. as of the date published. The information in this publication is for general information purposes only and is not to be construed as providing individual legal, tax, financial or other professional advice. Qualified Financial Services Inc. assumes no responsibility for any errors or omissions in the information contained herein nor for any reliance placed on such information. Please seek independent professional advice before making any decisions.


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