Individual Pension Plans

If you are a business owner, incorporated professional or executive concerned about the most effective way to save for retirement, you may want to consider an Individual Pension Plan.

What is an Individual Pension Plan (IPP)?

An Individual Pension Plan (IPP) is a defined benefit pension plan for the benefit of one or two individuals. There are significant advantages that Individual Pension Plans have over Registered Retirement Plans (RRSPs).  

Are you eligible for an Individual Pension Plan?

The ideal candidate for an IPP is an individual who:

  • is at least 45 years old

  • an employee of a corporation (could be a business owner/executive/incorporated professional)

  • historically has had employment income of at least $100,000/year since 1990

  • reliable future employment income stream in excess of $100,000/year

  • has no foreseeable need to access the funds set aside for retirement (ex. retirement funds should not be needed for an emergency) since funds inside an IPP are locked in.

Advantages of Individual Pension Plan

  • Increased Contributions– a company can contribute more to the owner’s retirement fund at a higher level than the individual could contribute to his/her RRSP. Why? The max contribution for an RRSP is the same at all ages vs. in an IPP, this can increase with age.

  • Additional Contributions for Past Service– Past service contributions might be possible, if the owner has been receiving salary in past service years. This can be useful for individuals that have significant RRSPs and high incomes to transfer company surplus into retirement savings for the owner on a tax deductible and deferred basis.

  • Additional Contribution at Retirement

  • Offset Any Investment Underperformance

  • Creditor Protection- Assets held inside an IPP are protected from creditors of both employee and the employer under provincial pension benefits standards legislation

  • IPP Costs are Deductible to the business- The IPP is a company obligation and all costs- administrative, actuarial, investment management and accounting are tax deductible to the corporation.

  • Possible Inter-Generational Transfer of Pension Assets

  • Spousal Pension Planning

Disadvantages of Individual Pension Plan

  • Costs- An IPP is considerably more costly to establish and administer than RRSPs, they require setup, annual and tri-ennial valuation fees.

  • Complexity– An IPP has annual filing requirements with CRA and fiduciary responsibilities on trustees.

  • Inflexible- No access to the funds while the business owner is employed and a member of the plan

  • Minimum annual contribution requirements

  • Administrative Reporting- There are several administrative requirements involved in establishing and maintaining an IPP. This includes CRA registration, Investment restrictions, annual filings, tri-ennial actuarial valuations.

  • Public Disclosure– Certain information relating to registered plans is available to the public.

Determine if an IPP makes sense

An IPP can have significant tax benefits if an individual’s circumstances make sense. Talk to us and we can help guide you to ensure you’re making the right choice when it comes to funding your retirement.