Business owners and key executives with incomes above registered retirement savings plan (RRSP) limits want to be provided with periodic retirement income and build retirement assets large enough to maintain a desired lifestyle.  An individual pension plan is a personal defined benefit pension plan, which may achieve the goal of building greater retirement assets.

What are the Key Benefits? 

  • Retirement income is known in advance, as it is a defined benefit plan
  • Growth at 7.5% per annum, with valuations every three years
  • Contribution amounts increase with the age of the member, subject to adjustments.
  • All contributions and costs are tax-deductible to the sponsoring company
  • Potential for credit protection
  • Reduces payroll taxes in certain provinces
  • Opportunity to keep the plan operating after age 69, if the plan is paying the retirement benefits
  • The level of funding required to provide the promised retirement befits is calculated by actuaries, who follow guidelines set down by income tax regulations
  • If the pension plan document permits, any plan surpluses belong to the member
  • Owners of a corporation have an alternative, tax-efficient way to move funds out of their business now or in preparation of selling the business
  • Possible succession planning within an incorporated family business (taxes are deferred upon death)

What you Need to Know 

  • Assets are locked-in until drawn for retirement income
  • The plan must be funded each year by the sponsoring company to reach a growth rate of 7.5% per annum, the company carries the risk for covering deficits
  • Income splitting opportunities using spousal RRSPs are diminished
  • There are significant costs associated with an IPP included start-up costs, trust documents, registration requirements, triennial actuarial valuations and annual filing requirements
  • IPPs are complex      

Comparing an IPP with an RRSP 

  • Retirement income with an IPP is known in advance, since it is a defined benefit plan;
  • RRSP income paid out from a registered pension plan is dependent on the performance of the investments in that plan.
  • Contributions to an IPP may be larger than RRSP contribution limits
  • IPP contribution schedule is calculated by actuaries and revised every three years
  • Assumptions by the income tax regulations require a 7.5% annual return, which is the sponsoring corporations risk; investments in an RRSP cannot guarantee a return.  

Who should consider an IPP? 

  • Owners of a corporation
  • Professionals
  • Key executives

The ideal plan participant should be over 40 years of age, earn an annual income of more than $100,000 and be employed with their current employer for at least 7 years.



Individual Pension Plans (IPPs) 

An individual pension plan (IPP) is a personal defined benefit plan. The primary purpose of an IPP is to provide periodic retirement income to the member of the plan at a stated retirement age.