Individual Pension Plan

What is an Individual Pension Plan (IPP)?

An Individual Pension Plan (IPP) is a secret weapon for business owners when it comes to building wealth and maximizing retirement. Think of an Individual Pension Plan like you would any pension plan… only this pension is designed especially for you and your unique situation.

What is the benefit of an Individual Pension Plan (IPP)?

IPP’s have several benefits over RRSPs – yet few Canadians explore them:
Greater accumulation of capital – you can contribute more to an IPP than an RRSP
Security – IPP provide possible creditor protection (unlike RRSPs) Speak to a qualified legal advisor regarding the asset protection options available to you.
Predictability – an IPP provides more security in that you’ll know exactly how much you’ll receive in pension benefits in retirement – unlike an RRSP where the benefit depends on future markets
Tax efficiency – all contributions and fees paid to your IPP are fully tax-deductible corporately. For you, these IPP contributions are non-taxable and all investment growth is tax deferred until withdrawn at retirement. Pension income can be split with a your spouse whenever you choose (as opposed to after age 65 for RRSPs)
Greater control of investment returns – If your IPP doesn’t earn 7.5% (the benchmark) in a given year, your company can make additional tax-deductible contributions to “bridge the gap” which allows you to accumulate a predictable pool of money on a tax-assisted basis.

Are there other benefits of an IPP?

The many other benefits of Individual Pension Plans makes them the most under-utilized retirement planning tool available. Some of these additional benefits are:
Past service contributions – another notable benefit of an IPP is the opportunity to make additional deductible contributions from the time you’ve owned your company, well before the IPP was established.
Additional contributions at retirement – whenever you choose to receive your pension benefit from the IPP, you have the option to make an additional contribution to cover “supplementary” benefits that are only payable upon retirement.
Flexible retirement options – Typically, when business owners retire, either the company becomes inactive or has been sold. If this is the case, you elect to receive pension payments as planned or you can choose to transfer the value of your IPP to another registered plan such as a Life Income Fund, Locked-in RRSP or an insured annuity.
Tax-Free wealth transfers – if your spouse or children are employed in your business, they can also become members of the IPP. Unlike RRSPs, IPP assets can pass to your next generation in this way without incurring estate taxes or probate fees.

How do Individual Pension Plans Work?

Essentially, an IPP is a defined benefit pension plan that allows for larger tax-deferred contributions compared to an RRSP. Upon retirement, it provides an annual pension income that is calculated by the number of years of your employment and your level of T4 income. With a defined benefit pension plan, you gain the assurance of knowing the precise amount you’ll receive in pension benefits annually—an invaluable feature given the unpredictable nature of capital markets. In contrast, RRSPs lack this certainty of a fixed income at retirement. You can also invest in the same things as your RRSP, including:
– stocks
– bonds
– options
– mutual funds
– exchange-traded funds (ETFs)
– guaranteed investment certificates (GICs)
Pension rules are set provincially. There is no federal pension regulator in Canada. Rather, each province has its own pension regulator – but all must adhere to CRA rules.

Is an Individual Pension Plan right for me?

An individual pension plan isn’t just a great way to build wealth and save taxes, they can be a great tool to recruit and retain employees too. If you want to explore an IPP for yourself or your business, please get in touch with us for a free, no-obligation consultation and we will help you determine if this is the right plan for you.

All too often the tax implications of a will are overlooked. The last thing a business owner wants to do is to make the CRA the largest beneficiary of their estate. Once again, by taking a proactive approach to tax planning, our Estate Planners will review the current will, and will offer helpful suggestions that can significantly reduce the amount of tax owing in the case of a sudden demise of either the principal shareholder or other affiliated business shareholders.