What is the pension adjustment for Jack if he earned $52,000 this year?

The pension adjustment (PA) is a calculation used in Canada to determine the value of pension benefits earned during the year and to ensure that these benefits are factored into the contribution limits under the tax rules. The PA is generally linked to an employee's earnings and the pension plans they are a part of, particularly defined benefit and defined contribution plans.

To calculate the pension adjustment for Jack, if he earned $52,000 this year, one must look at the formula used for this determination. The typical calculation for a pension adjustment is based on a percentage of the employee’s earned income, with certain threshold amounts applied depending on the type of pension plan. For many plans, the pension adjustment is often calculated as 18% of the employee's income up to a certain limit.

In this scenario, applying the 18% factor to Jack’s earnings of $52,000 leads to the following calculation: $52,000 x 0.18 = $9,360. However, the maximum pension adjustment is capped based on the contribution room available. This means there are limits that can constrain the resulting pension adjustment amount based on specific thresholds set by the Canada Revenue Agency (CRA).

In this instance, Jack’s pension adjustment of $4,160 represents