The main difference: a Group Registered Retirement Savings Plan (Group RRSP or GRRSP) is a flexible, employer-sponsored plan where employer contributions are optional and employees can access their money before retirement, while a Registered Pension Plan (RPP) requires employer contributions, is more heavily regulated, and usually locks funds in until retirement — sometimes with a guaranteed pension for life.
Trying to understand how one group savings plan compares to another and which plan is best suited to meet your goals can feel like a lot to take in.
Think of this article as your friendly trail guide to help you find your way. Once you've finished reading, you're likely to have a clearer view of which plan is best suited to your goals.
We'll break down the differences between a Group RRSP and an RPP, take a look at the pros and cons of each, and list top considerations to help you decide what's best for your workforce.
What is a Group RRSP?
A GRRSP is a common employer-sponsored retirement savings plan in Canada. A GRRSP is similar to an individual RRSP except it permits employer matching, provides automatic contributions directly from an employee paycheque and immediate tax savings, and typically offers lower management fees due to the pooling of assets.
As the employer, you are responsible for choosing the GRRSP administrator, which is typically an insurance company, bank, or online financial service provider. You also determine which investment options are available to your employees.
In a GRRSP, employees contribute pre-tax dollars through payroll deductions. Contributions are tax-deductible and investments are tax-sheltered until the money is withdrawn.
You can choose to set up an employer matching program where you kick in a percentage that parallels the employee's contributions up to a certain amount (usually around 3% to 5% of their annual salary). Or, you can choose to set up a non-matching plan where you don't contribute anything, but instead provide a convenient way for employees to contribute and build savings.
What is an RPP?
A RPP is an employer-established group retirement plan that is registered with the Canada Revenue Agency (CRA). As the employer, you are responsible for establishing the plan with a financial institution. You also choose how the money is invested and are required to contribute to the plan.
Here's how the two types compare at a glance:
Feature | Defined benefit RPP | Money purchase (defined contribution) RPP |
|---|---|---|
| Pension amount | Guaranteed — set by a formula using salary and length of employment | Not guaranteed — depends on contributions and investment performance |
| Contribution limit | No fixed dollar limit; set by the actuarial formula | 18% of pensionable earnings, up to the CRA's annual dollar cap |
| Employer risk | Higher — you fund the promised pension regardless of returns | Lower — no guaranteed amount to meet |
| At retirement | Set pension schedule | Employee decides how to use the funds |
How Group RRSPs and RPPs are taxed
Both plans are registered, which means the money you contribute grows tax-sheltered until it's withdrawn. The main differences come down to how contributions are deducted and how each plan affects your yearly contribution room.
With a Group RRSP, contributions are made with pre-tax dollars through payroll and are tax-deductible. Employer contributions count as a taxable benefit and are subject to payroll taxes.
With an RPP, employee contributions are also tax-deductible, and employer contributions are generally not treated as a taxable benefit.
An RPP creates a pension adjustment that lowers your available RRSP contribution room for the following year. A Group RRSP does not.
Contribution limits differ too. RRSP contributions are capped at 18% of your previous year's earned income, up to an annual maximum set by the CRA. A defined benefit RPP has no fixed contribution limit because contributions are set by the pension formula.
Group RRSP vs RPP: three main differences
The three biggest differences between a Group RRSP and an RPP are simplicity, flexibility, and payout.
Simplicity. A GRRSP can be simpler to administer than an RPP because it is less regulated. The RPP is subject to federal and provincial benefits standards legislation. This can mean more hoops to jump through if, for some reason, you had to suspend the pension program. You can read more about the pension rules that apply to your province on the Government of Canada website.
Flexibility. A GRRSP offers more flexibility than an RPP. A GRRSP gives employees the option to withdraw funds to use in the Home Buyers' Plan (HBP), the Lifelong Learning Plan (LLP), or for some other personal reason. The RPP does not offer a similar program and RPP plans that are locked-in prevent employees from withdrawing money unless they are terminated, retire, or pass away.
Payout. While an RPP, specifically the defined benefits plan, might not provide your employees with the freedom to withdraw money whenever they need it, it does come with the promise of a guaranteed pension for life, and that's an increasingly rare offer. And both types of RPPs also remove the temptation for employees to dip into retirement funds for other reasons, which means they can be more likely to have these funds available in their retirement years.
Group RRSP vs RPP: a side-by-side comparison
Here's a quick view of how the two plans compare across the factors that matter most.
Feature | Group RRSP | RPP |
|---|---|---|
| Employer contributions | Optional | Required |
| Regulation | Lighter | Federal and provincial pension legislation |
| Contribution limit | 18% of earned income | No fixed limit for defined benefit plans |
| Early withdrawals | Allowed (Home Buyers' Plan, Lifelong Learning Plan, or other reasons) | Generally locked in until retirement, termination, or death |
| Reduces RRSP room | No | Yes, through a pension adjustment |
| Guaranteed payout | No | Yes, for defined benefit plans |
Group RRSP vs RPP: employer pros and cons
Group RRSP employer pros
Simple to administer
Employer can define the contributions and choose to add or remove employer matching at any time
Attracts new talent and retains employees, especially if you offer a matching program
Less regulated than an RPP which can make it easier to suspend if necessary
Less risk since the payout amount is based on investment performance (i.e. not guaranteed)
Group RRSP employer cons
Employer contributions are subject to payroll taxes, including employment insurance and Canada Pension Plan premiums (visit the CRA for more information)
Employees may be disappointed if the GRRSP doesn't provide matching
Funds can be removed from unrestricted plans and used for something other than retirement
RPP employer pros
Contributions are a deductible expense
In a small number of provinces, you can implement a vesting period (if an employee quits before the end of the vesting period, the money goes back to you)
An incentive to attract new talent and retain employees, especially if you offer a defined benefits plan
RPP employer cons
Administration costs for defined benefits plans can be high compared to the cost of other group plans
The employer takes on a large amount of risk if offering a defined benefit RPP because you can't predict how the investments will perform
Complex to administer due to federal and provincial benefits standards legislation
Employee pros and cons: Group RRSP vs RPP
Group RRSP employee pros
Easy to invest with automatic payroll deductions
Popular and familiar program that can help employees feel more confident about how the plan works
Up to the employee to decide how much they want to contribute — no minimums
Potential for free money if there is an employer matching program
Lower management fees than individual RRSPs due to pooling of employee assets
Employees have the option to withdraw their funds to use in the Home Buyers' Plan (HBP) or Lifelong Learning Plan (LLP)
Can make spousal contributions
Group RRSP employee cons
The employer can stop matching or cancel the plan at any time
The employer can also limit the employees' ability to withdraw funds
Temptation to withdraw funds earlier than retirement (although fees may apply)
No guarantee of investment performance
RPP employee pros
Employers are required to contribute to the plan
Some plans also have a matching program
Heavy provincial and federal regulations make it more difficult for employers to dissolve the pension program
Some RPPs guarantee a set pension amount for life
RPP employee cons
Can't access the money until retirement
Usually must be a full-time employee to qualify. Eligibility varies by plan and province; part-time employees who meet the plan’s thresholds (often two years of service plus minimum earnings or hours) must generally be allowed to join.
For some RPPs, there is a contribution limit (18% of an employee's annual salary)
Contributions to your RPP will likely reduce RRSP contribution limit
Immediate vesting is now the norm across almost all Canadian jurisdictions; only a small number still allow a vesting period (meaning if an employee leaves the company before a certain date, those RPP funds could return to the employer)
No opportunity to make spousal contributions
Group RRSP vs RPP: how to decide which plan is right for your employees
The right retirement savings plan will depend on the specific goals for your company and your employees. When trying to decide between the Group RRSP vs RPP, consider the following variables.
Size of your business. For small business owners, a GRRSP might be a simpler choice because it's not subject to the same provincial and federal pension legislation as an RPP. This can make the GRRSP a more flexible option to work with if you have to make any changes or even suspend the plan.
Risk tolerance. A defined benefit RPP comes with a higher level of employer risk. If you guarantee your employees a set pension then you are responsible to pay for it regardless of how the investments perform.
Age and employee characteristics. Consider talking to your employees to get a sense of their long-term financial goals. Do they want to wait until retirement before they can access this money? Or, do they want a retirement savings plan that offers a bit more flexibility? Depending on the age of your employees and the stage they are at in their lives, they might prefer a plan that provides the opportunity to withdraw their investments to fund a home or continue their education.
Employee retention. While both a Group RRSP and RPP can help attract employees, an RPP plan might provide extra incentive to stick around, specifically if you offer a defined benefits plan. Since the guaranteed pension amount is calculated using the length of employment, the longer an employee stays, the higher their guaranteed pension amount will be.
How to switch from an RPP to a GRRSP
It is possible to transfer an RPP to a Group RRSP and vice versa. However, there are a number of legislative requirements associated with an RPP, which can make switching from an RPP to a GRRSP a fairly complicated process.
Guidance for employers
To end your RPP, a partial wind-up (also called a termination) must occur. The first step in this process is to contact your plan administrator. They can begin to walk you through the lengthy wind-up process.
If you decide to end the plan, you will need to notify all of your employees and anyone that might be affected by this process. You are required to create a statement that outlines your employees' entitlement under the plan as well as other specific information that is outlined in the Pension Benefits Act.
Once the plan is "wound up," employees have the option of transferring their money to an RRSP or another registered pension plan that accepts transfers. If you have employees who choose to not transfer their money to another registered plan then you have a few options. You can purchase annuities from an insurance company for eligible employees or you can pay all immediate and deferred pensions from the pension plan.
Reach out to an insurance company, bank, or online financial service provider to set up a GRRSP.
Considerations for employees
With an RPP, employees cannot initiate a transfer unless they have been terminated, retire, the plan is terminated, or they pass away.
If the employer is terminating the pension plan, then employees 71 years and under can transfer a lump sum amount directly between an RPP and an RRSP providing the money is not in a locked-in fund. In transferring from one registered account to another, they likely won't have to declare the amount as income.
However, there are limits to how much can be transferred from a defined benefit RPP to RRSP. In this scenario, employees also have the option to withdraw their cash. However, this money will be taxed as income.
If the money is in a locked-in fund then it can only be transferred to a Locked-In Retirement Account (LIRA), Life Income Fund (LIF), or — depending on the province — a Locked-In Retirement Income Fund (LRIF, now offered mainly in Newfoundland & Labrador), a Restricted LIF / RLIF (federal plans), or a PRIF (Saskatchewan and Manitoba), where permitted.
How to get employees excited about whichever offering you choose
The Group RRSP and RPP are both benefits that can help you to attract and retain talent. To get your employees excited about your group plan, try implementing the following tips:
Focus on the pros. Every benefit plan comes with pros and cons. To engage your employees in your group plan, stay positive by focusing on the positives. What aspects of your plan will help to improve the lives of your employees and their families? If you offer a defined benefits plan, stress the guaranteed pension that will support your employee and their family into the future. If you choose a GRRSP, highlight the flexibility of the plan with the Home Buyers' Plan and the Lifelong Learning Plan.
Keep it simple. Group benefits programs can be very complex, especially for employees who might only think about them once or twice a year. To harness your employees' interest and engagement, explain your plan in a way that is easy to understand. You can use a combination of visual presentations, written documents, and question-and-answer sessions to accommodate different learning styles.
Provide reminders. Often when people are faced with something that they don't understand, they ignore it and then forget about it. To combat this, provide frequent reminders about your group benefits plan, especially during initial enrollment and when onboarding new staff. Also, try to keep conversations about group benefit opportunities going all year round and give employees the opportunity to ask questions.
