VRSP – Voluntary Retirement Savings Plan What's it for?

A voluntary retirement savings plan (VRSP) helps employees save for retirement through payroll deductions.

Employee and employer contributions

Are employees required to contribute to the plan?

No. An employee can opt out of the plan established by the employer.

Employees who become members of the employer’s plan determine their contribution. By default, the contribution rate is set at 4% of the employee’s salary. The employee can change their contribution rate or set it at 0%.

Are employers required to contribute to the plan?

No, they can if they want to, but it’s not mandatory.

Is it possible to contribute to a VRSP even if the employer doesn’t offer one?

Yes, provided the employee has contribution room (refer to the question “What is the annual contribution limit?”). Anyone can contribute to a VRSP by contacting an authorized administrator.

Consult the register of legal persons authorized

How a VRSP works

What is the annual contribution limit?

The RRSP and VRSP share the same contribution limit. This amount is indicated on your notice of assessment or reassessment from the Canada Revenue Agency. For example:

  • Each dollar contributed to the RRSP reduces the contribution limit for the VRSP by the same amount (regardless of whether the contribution is made by the employee or the employer).
  • Each dollar contributed to the VRSP reduces the contribution limit for the RRSP by the same amount (regardless of whether the contribution is made by the employee or the employer).

If the employee participates in a pension fund offered by his or her employer, the maximum amount will be reduced by the “pension adjustmentA pension adjustment is an amount that is used to determine the maximum allowable RRSP and VRSP contributions. In the case of a defined contribution pension plan, the PA reflects the employer’s and the employee’s contributions for the year.” determined by the Canada Revenue Agency.

The employee therefore needs to track their RRSP and VRSP contributions to ensure they don’t exceed the contribution limit for a registered plan.

What is the maximum age for making contributions?

On December 31 of the year the employee turns 71. A person who is not working can contribute to a VRSP, provided there is contribution room available.

Can investments be selected?

The employee may choose from a number of proposed investment options. If none are chosen, a default option applies. The portfolios are managed by an AMF-authorized plan administrator. The administrator can be an insurer, a trust company or an investment fund manager.

Each portfolio offered corresponds to certain risk/reward preferences.

Can funds in a VRSP be withdrawn or transferred before retirement?

For employee contributions and any returns on them:

Yes, these amounts can be withdrawn or transferred (to a supplemental pension plan (SPP), an registered retirement savings planAn Registered Retirement Savings Plan, or RRSP, is a registered account (an account with a bank or on-line broker, for example) in which investments can be made, the returns on which are not taxable as long as the money stays in the RRSP.
Investors who make contributions to their RRSP can deduct an equivalent amount from their taxable income (subject to certain conditions) and, as a rule, pay less tax.
However, when amounts are withdrawn from an RRSP, they must be added to taxable income.
The main purpose of an RRSP is to accumulate savings for retirement.
(RRSP), a RRSP,registered retirement income fundA Registered Retirement Income Fund is a plan that allows participants to defer taxes on investment income. The funds held in a RRIF are usually transferred from an RRSP.
Unlike with an RRSP, participants in a RRIF must withdraw a minimum amount each year (as with a LIRA).
Amounts withdrawn are taxable, as with an RRSP. 
(RRIF), a locked-in retirement accountA Locked-In Retirement Account (LIRA) is generally used for investing money coming from a Supplemental Pension Plan (SPP). The income generated by the investments in a LIRA is not taxable as long as it remains in the LIRA. To move money out of a LIRA, it must either be transferred to a Life Income Fund (LIF) or used to buy a life annuity from an insurance company. (LIRA), an annuity contract or another VRSP, for example).

For employer contributions (if applicable) and any returns on them:

Withdrawals are not generally permitted. However, you can transfer amounts under certain specific circumstances (in the event of termination of employment or when you reach the age of 55, for example). These amounts can be transferred to a supplemental pension plan (SPP), life income fund (LIF), locked-in retirement account (LIRA), annuity contract or another VRSP.

Contact the plan administrator for more details.

What amounts will be paid upon retirement?

It depends on the amounts accumulated.

The VRSP and income tax

Does making contributions result in tax savings?

Yes. Contributions are deductible from taxable income. For income taxes, a VRSP is similar to an RRSP.

Is income tax payable on the employer’s contribution?


Is the investment income taxable?

No. The amounts accumulate tax-free as long as they remain in the plan.

Are withdrawals taxable?

Yes. The amounts withdrawn from the plan must be added to taxable income.

VRSP – A concrete example

Jérôme contributes to a VRSP.

  • His salary: $50,000 per year.
  • His VRSP contribution: 4% per year.
  • His employer’s contribution: nothing.
  • His marginal tax rateThe marginal tax rate is a percentage of tax to be paid; it is not calculated on total income (unlike the tax rate), but only on the last dollar earned.
    It answers the question: “If I had earned $1 more, how much additional tax would I have paid?”  
    : 40%.
  • The annual return on the amounts invested in the VRSP: 5%
  • His salary increase: 2% per year.

VRSP contributions are deducted directly from his pay. Jérôme’s employer therefore deducts 4% of his salary every pay period and deposits the money to Jérôme’s VRSP (the money belongs to Jérôme, not his employer). After the first year, Jérôme will have invested $2,000 in his VRSP (4% of $50,000).

VRSP contributions are deductible from his taxable income. Jérôme will pay income tax on salary income of $48,000 instead of $50,000. This represents tax savings or a tax advantage of $800 (or 40% of $2,000).

Over a period of 20 years, with an annual return of 5%, Jérôme will have accumulated approximately $79,680 in his VRSP.

When Jérôme starts to withdraw money from his VRSP, the withdrawals will be added to his taxable income.