Pension Adjustments (PAs)

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    What is a pension adjustment?

    A Pension Adjustment (PA) is an annual calculation submitted to Canada Revenue Agency (CRA) that estimates the pension value a member earned in a registered pension plan in a tax year. It is reported on a T4.

    The PA was introduced in 1990 to essentially level the retirement savings playing field between individuals who earn a pension entitlement in Registered Pension Plans (RPP) and those who do not. The PA reduces a RPP member's RRSP contribution room for the following year to ensure individuals who belong to a RPP aren't able to save more tax-sheltered funds for retirement than those without a RPP.

    For example, an individual's PA from 2023 will be used to lower their RRSP contribution room in 2024.

    Employer responsibilities

    Since employers are responsible for calculating PAs for PSPP members, we've prepared the following instructions about when to report PAs to OPB and how to calculate PAs for a variety of scenarios:

    Additional scenarios

    When to report PAs to OPB

    After you've filed PSPP members' T4s with CRA (including their PAs), please remember to also send the 2023 PAs to OPB by February 29, 2024.

    Please send members' PAs electronically in a password protected Excel spreadsheet. The layout should be one column per field in the order and format indicated below:

    Column Format
    Social Insurance Number 9 Digits
    Employee Surname 30 Characters
    Employee First Name 30 Characters
    PA Year YYYY
    PA Amount (rounded to the nearest $) 8 Digits
    Amended PA* (rounded to the nearest $) 8 Digits
    Termination Date (if applicable) YYYYMMDD

    Why do I have to report PAs to OPB?

    PAs are just an estimate of the value of the benefit a member earned in the PSPP. We can't actually determine the total value a member has earned until they terminate their membership, and we calculate their benefit.

    If a member terminates and opts to transfer their benefit out of the Plan, we're required to check whether the PAs were overstated, i.e., meaning the member lost too much RRSP room.

    If the member lost too much room, we'll file a pension adjustment reversal (PAR) with CRA to restore the member's RRSP contribution room to the correct level.

    Important: Don't report PAs for members who died during the year.

    How to calculate a PA - The basics

    PAs for individuals enrolled in a registered defined benefit pension plan are calculated using the following formula:

    Benefit Entitlement × 9 − $600

    Here's how to calculate a PA for a PSPP member:

    Step 1: Calculate the member's Benefit Entitlement (BE) using the PSPP benefit formula:

    Benefit formula:

    (2% × 2023 Annual Salary) − [0.7% × (lesser of 2023 YMPE and 2023 Annual Salary)]

    Step 2: Insert the BE you calculate above into the pension adjustment (PA) formula:

    PA formula: BE × 9 − $600 (rounded to the nearest dollar)

    Note: If the amount is halfway between two-dollar amounts, round to the next highest dollar.

    To calculate a member's PA, you need the following 3 figures:

    1. 2023 Annual Salary

      Please use the member's base annual salary to calculate their PA. Base salary excludes overtime pay or any payment made in lieu of a benefit, or any other payment that is not part of the member's regular annual salary, e.g., vacation pay, expense reimbursements, and/or bonuses. 

      Annual salary for part-time or unclassified members 

      The annual salary for members employed on a part-time or unclassified (variable hours) basis is the amount the member would have received had they worked on a full-time basis throughout the year.
    2. Year's Maximum Pensionable Earnings (YMPE)

      The YMPE is an annual figure that the Canada Pension Plan (CPP) uses to calculate benefits from that Plan. Since the PSPP is integrated with the CPP, this figure is incorporated into the calculation of Plan benefits and members' PAs. The YMPE for 2023 is $66,600. 

      Note: If you need to calculate or recalculate a prior year PA, please remember to use the annual YMPE for that year. Also, you don't have to report an amended PA if the difference between the original PA and the amended PA is less than fifty dollars.
    3. Annual PA Maximum 

      Before filing PSPP members' PAs with CRA, please remember that the PAs reported to CRA and OPB must be less than or equal to the Annual Maximum PA allowed under the Income Tax Act (ITA). The maximum PA for 2023 is $30,960. 

      Note: If you need to calculate or recalculate a prior year PA, please remember to check the maximum allowable PA for that year before remitting the PA to CRA and OPB.

    PA calculation example - basic (i.e., for a full-time member)

    How to calculate a PA for a member who works on a regular part-time (RPT) or unclassified (variable hours) basis

    If the member works less than full-time, first calculate the PA as if the member was employed on a full-time basis (i.e., use the annual salary for the full-time equivalent), and then pro-rate that figure by the member's RPT ratio, or by the number of hours they worked over the course of the year.

    PA calculation example - RPT member

    PA calculation example - unclassified member

    How to calculate a PA for a partial year of credit

    If the member earned less than one year of credit, you must prorate the PA as follows:

    PA × (number of days of credit) divided by 365 days (use 366 days for a leap year)

    Examples of members who earn less than a full year of credit include:

    • new members who joined part-way through the year;
    • members who work less than full-time;
    • members who terminated or retired part-way through the year; and
    • members who took an approved unpaid leave of absence (including pregnancy or parental leave) and who didn't contribute for their leave of absence.

    PA Calculation example - a partial year of credit

    How to calculate a PA when a member's salary rate changes during the year

    If the member's salary rate changes during the year, the annual salary used to calculate their PA is a weighted average. To calculate the weighted average, you need to:

    1. Pro-rate each salary rate by the number of days the member worked at each salary; and
    2. add all the pro-rated salaries together.

    This will give you the weighted average.

    Example:

    Salary rate 1: $80,000.00 (effective from January 1, 2023 to April 28, 2023 or 118 days)

    Salary rate 2: $90,000.00 (effective from April 29, 2023 and onwards or 247 days)

    Step 1: Calculate the weighted average to determine the annual salary:

    (118/365) × $80,000.00 + (247/365) × $90,000.00 = $86,767.12

    Note: Use 366 days for leap years.

    Step 2: Calculate the Benefit Entitlement (BE):

    Based on a full year of credit and an annual salary of $86,767.12, the 2023 BE is: (2% × $86,767.12) − (0.7% × 66,600.00) = $1,269.14

    Step 3: Calculate the Pension Adjustment (PA):

    Using the BE calculated above, the 2023 PA is: ($1,269.14 × 9) − $600.00 = $10,822.26

    Report the PA ($10,822), rounded to the nearest dollar, to CRA.

    How to calculate a PA when a member contributes during a leave of absence

    If the member contributes for their unpaid leave of absence, we'll send you a letter indicating the pension credit that the member earned during their leave. You must include this credit when calculating the member's PA.

    Depending on when the leave ends, we may not be able to send the letter until after you've already filed the member's T4 with CRA. If you receive our letter after your annual T4 filing, you're responsible for sending an amended T4 to CRA with the adjusted PA.

    Example:

    Mary took an unpaid leave of absence from July 12, 2023 to April 30, 2024. During their leave, Mary continued to contribute to the PSPP and earned an additional 173 days of credit in 2023 and 120 days of credit in 2024.

    Since Mary contributed during their leave, we'll notify Mary's employer about the additional credit when Mary returns to work. Mary's employer will have to include the 173 days of credit to their 2023 PA.

    Because Mary's leave didn't finish until after CRA's deadline for filing 2023 T4s, their employer will have to send an amended 2023 T4 with a PA that includes the additional 173 days of credit. The 120 days in 2024 will be included when the employer calculates their 2024 PA in 2025.

    How to calculate a PA when member receives a retroactive salary adjustment

    When a member receives a lump sum retroactive salary increase (back pay), it’s accounted for in in year it’s paid for PAs. Add the retroactive payment to the member’s current year's salary (i.e., the year in which the payment was made) and use this figure to calculate the PA which is capped at the maximum allowable PA for the year of payments.

    Example:

    John receives a retroactive salary increase in 2024 where the effective date of the salary change was in 2023. Therefore, John's employer must add the lump sum related to the increase to their 2023 salary before calculating the 2024 PA. John’s PA must be capped at the 2024 annual PA maximum of $31,890.

    Exception: A PA must be calculated when a member receives a retroactive salary adjustment after the tax year in which their PSPP membership ended. The prior year PAs are recalculated using the adjusted salary for each prior year, the sum of the differences between the adjusted PAs and the figure originally reported to CRA in the prior years are reported on the T4 slip in the year payment along with the lump sum paid.

    How to calculate PAs for members on LTIP or LTD

    Members on LTIP/LTD continue to accrue pension credit in the PSPP since their employer is required to make contributions on their behalf.

    When calculating the member's PA, treat periods where they were eligible to LTIP/LTD as if they were still at work.

    Example:

    Janice goes on an unpaid illness leave on March 31. On September 1, Janice becomes eligible for LTIP/LTD and their employer contributes to the PSPP on their behalf throughout the rest of the year.

    To calculate Janice's PA, their employer must use the service Janice earned prior to going on leave (Jan 1 to Mar 30), service related to the LTIP/LTD period (Sept 1 to Dec 31), and any credit Janice earned during their leave of absence (Mar 31 to Aug 31).

    How to calculate a PA when a member transfers between the PSPP and the OPTrust Pension Plan (for employers who participate in both Plans)

    When a member transfers between the PSPP and the OPTrust Pension Plan during the year, you must calculate the PA for the benefit earned in each Plan separately and report them as one figure on the member's T4.

    Example:

    Jon has worked at ABC, an organization that participates in both the PSPP and the OPTrust Pension Plan for several years. On May 1, Jon moves to a new position at ABC where they are required to participate in the PSPP. Prior to the move, Jon participated in the OPTrust Pension Plan.

    At year-end, Jon's employer must calculate the PA related to the period of membership in the OPTrust Pension Plan (Jan 1 to Apr 30) using that Plan's benefit formula and use the PSPP formula to calculate the PA for the period of service where Jon participated in the PSPP (May 1 to Dec 31). The employer reports both PAs as a single figure on Jon's T4.

    Additional Resources

    For more information, please see: