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VRSP (Voluntary Retirement Savings Plan)

Description of VRSP (Voluntary Retirement Savings Plan)

A VRSP is a retirement savings plan which has been implemented gradually since July 1, 2014. It  allows participating employees to contribute through payroll deductions. For tax purposes, employee contributions will be deducted from earned income and will grow tax-free.

Who can become a member of a VRSP?

A VRSP is aimed primarily at employees 18 years of age or over who do not have access to a registered pension plan or a registered retirement savings plan offered by their employer or a TFSA for which payroll deductions could be made. Employees must be credited with one year of uninterrupted service1.

Eligible employees are automatically registered in the VRSP subscribed to by their employer. Self-employed workers and all workers wishing to benefit from such a plan may subscribe to a VRSP.

What is the maximum amount you can contribute?

The contribution ceiling is the same as for an RRSP, i.e. 18% of annual income, up to $24, 270 in 2014, $24,930 in 2015 and $25,370 in 2016. However, if you are a member of the pension fund offered by your employer, the maximum amount will be reduced by the "pension adjustment" determined by the Canada Revenue Agency and indicated on your T4 slip. If your employer contributes, its contributions will also reduce the maximum allowed. Therefore, the more you contribute to your VRSP, the less you can contribute to an RRSP. You will therefore have to keep track of how much you contribute to your RRSP and VRSP to make sure you do not exceed the contribution limit for a registered plan. If you exceed the maximum allowed, a penalty of 1% per month will apply to the excess amount.

What investment options will be available?

The VRSP administrator will suggest a default investment option. You will also be able to choose from among three to five other investment options according to your degree of risk and expected return.

When should your employer offer you a VRSP?

Employers can set up a VRSP since July 1, 2014. They must subscribe to a VRSP and automatically enroll eligible employees in the plan no later than:

  • December 31, 2016, if the employer has 20 eligible employees or more on June 30, 2016;
  • December 31, 2017, if the employer has from 10 to 19 eligible employees on June 30, 2017;
  • a date set by the Government that may not be prior to January 1, 2018, if the employer has from 5 to 9 eligible employees.

These employers must set up a VRSP but are not required to contribute to it financially. Employers who have 4 employees or less may subscribe to a VRSP on a voluntary basis.

Summary of VRSP

Questioning Voluntary Retirement Savings Plan (VRSP)

What will be the amounts paid upon retirement?

Based on accumulated amounts

Does the employer contribute to the plan?

Optional

Does the employee contribute to the plan?

Employees are enrolled in the VRSP by default, but can opt out of participating in the plan

Are employer contributions taxable for the employee?

No

Are contributions made by the employee deductible from taxable income?

Yes

Example

Take the fictitious example of Jérôme, who earns $50,000 per year. He contributes 2% of his salary to a VRSP through automatic payroll deductions. His marginal tax rate is 40%. He therefore contributes $1,000 (2% of $50,000) for the first year. Given the automatic tax reduction ($400, i.e. 40% of $1,000), he only spends $600. At the end of the first year, he will therefore have accumulated $1,021, i.e. $1,000 invested plus the return. His salary increases by 2% per year. Here are the amounts he will accumulate in his VRSP if he earns a 4.5% annual return. We will assume that his employer does not contribute to his VRSP.

Table of amounts accumulated over time

Years Annual salary Employee's contribution to VRSP net of tax Accumulated amounts

1

$50,000

$600

$1,021

2

$51,000

$612

$2,109

3

$52,020

$624

$3,267

4

$53,060

$637

$4,498

5

$54,122

$649

$5,806

6

$55,204

$662

$7,195

7

$56,308

$676

$8,669

8

$57,434

$689

$10,232

9

$58,583

$703

$11,889

10

$59,755

$717

$13,645

11

$60,950

$731

$15,504

12

$62,169

$746

$17,471

13

$63,412

$761

$19,553

14

$64,680

$776

$21,754

15

$65,974

$792

$24,081

16

$67,293

$808

$26,539

17

$68,639

$824

$29,136

18

$70,012

$840

$31,877

19

$71,412

$857

$34,770

20

$72,841

$874

$37,823

Note that any amounts taken out of the VRSP will be taxable.

For more information, visit the Régie des rentes du Québec website.


1Within the meaning of An Act respecting labour standards

How much will you accumulate in your VRSP?

Use our VRSP calculator!