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Pension Buyback in Canada: Buying Past Service and Your RRSP Room

Updated

A pension buyback lets you buy credit in a defined benefit pension plan for time that wasn’t counted as pensionable service. Whether you can, which periods qualify and what it costs depend on your plan’s terms. This page explains how it works, how to pay for it, and how it affects your RRSP room. It is part of the workplace pensions hub.

What you can buy

Plans set their own rules. Periods a plan may offer include an unpaid leave, a waiting period before you joined the plan, part-time service, or service with an earlier employer under a transfer agreement. Ask the plan administrator which periods you can buy and whether there is a deadline to apply.

What it costs and what it adds

The plan sets the price, using actuarial assumptions about interest rates and life expectancy, so the cost depends on your age, earnings and the plan’s benefits. The added pension follows the plan’s formula.

In a plan paying 2% of best-average earnings per year of service, buying back 3 years with best-average earnings of $90,000 adds 3 × 2% × $90,000 = $5,400 a year to the pension, or $450 a month. The plan’s quote says what that costs.

Paying for it

  • A direct transfer from your RRSP (or from a DPSP or a money purchase plan) to the pension plan. This is a qualifying transfer: it reduces the PSPA, so less of your RRSP room is used.
  • Cash contributions, as a lump sum or in instalments if the plan allows them. Contributions to a registered pension plan are generally deductible on line 20700; for past service before 1990 the deduction is limited (CRA line 20700).

The past service pension adjustment (PSPA)

Buying back past service after 1989 in a defined benefit plan creates a past service pension adjustment (PSPA) that reduces your unused RRSP room; when the CRA must certify it, it generally does so only if the PSPA is no more than your unused room plus $8,000, and a larger PSPA can be certified after a qualifying withdrawal from your RRSP (taxable, designated on Form T1006) or reduced by a qualifying transfer from your RRSP to the plan.

When the PSPA is more than zero, the plan administrator applies for certification on Form T1004, and the CRA must certify it before benefits for the past service can be paid. Pension adjustments explained covers the PSPA alongside the yearly pension adjustment.

What to weigh

  • Indexing: a pension that rises with inflation is worth more per dollar of buyback cost than one that doesn’t.
  • Staying with the employer: the added service raises the pension or its commuted value if you leave, but the value depends on the plan’s formula at that point.
  • Your health and other income: a pension pays for life, so its value depends partly on how long you expect to receive it.
  • What else the money could do: RRSP money used for a buyback is no longer available to withdraw or invest yourself.
  • Survivor benefits: a joint and survivor pension continues part of the added income to a spouse.

Tax on the added pension

The pension it adds is taxable income when paid, like the rest of the pension. Up to $2,000 of eligible pension income qualifies for the federal pension income amount; RRIF and annuity payments count from age 65 (or earlier if received because a spouse died), lifetime pension (life annuity) payments from a registered pension plan at any age, and CPP, OAS and GIS payments never count.

Sources

The figures and rules on this page come from these sources, last checked against them on September 30, 2026. How we check facts.