Individual Pension Plans (IPP)

 
 
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Retire Smarter!

You have spent years building.  You've poured your heart and your profits into creating and growing a successful business.  Now you're looking forward to thoughts of retirement and want to ensure you get the value back out.  

The Individual Pension Plan allows business owners to shelter more savings while playing a key role in your financial and retirement security.  

Is the Individual Pension Plan (IPP) Right for you?

  • Your business is incorporated

  • You are at least 40 years of age

  • You take a salary from your company every year

  • Your company has predictable and positive cash flow

  • You would like to ensure your retirement is creditor protected

  • You would like a more efficient retirement strategy.

The Individual Pension Plan holds many benefits, such as:

  • - Income Tax Deductions

  • - Higher Contribution Limit than RRSPs

  • - Guaranteed Retirement Benefit

  • - Additional Pension Benefits:

    • + CPP bridge benefit

    • + unreduced early retirement benefits

    • + inflation protection

    • + past service "buy-back" entitlements

    • + and so much more.

The Individual Pension Plan (IPP) in more detail:

An Effective Retirement Savings Solution for Professionals and Business Owners

For most workers, primarily middle income contributors, an RRSP is an efficient retirement savings vehicle.  However, an RRSP  may not meet the needs of higher-income individuals, such as incorporated professionals and business owners.  With higher incomes, RRSP contributions become limited and cannot generate sufficient savings to allow a more comfortable lifestyle in retirement.  

The IPP is a registered pension plan for a single member, designed specifically for incorporated business owners.  It offers higher tax deductions and allows for the maximization of retirement savings under current legislation.  The IPP is an excellent alternative to the traditional method of simply contributing to an RRSP.

What is a Individual Pension Plan?

The IPP is a Canadian pension plan registered with the Canada Revenue Agency (CRA) and provincial pension authorities, where required.  The member's Corporation establishes and funds the plan, with all contributions and plan expenses tax deductible.  

The retirement income generated by a IPP is always greater than the income provided by an RRSP because at any age, someone contributing the maximum pensionable salary can always contribute more to a IPP than to an RRSP. 

Benefits of the InDIVIDUAL Pension Plan

  • Tax deductions - IPP contributions and costs are tax-deductible and paid by the company. Any employees' contributions offer personal tax deductions.

  • Creditor protection - Unlike most RRSPs, the IPP is creditor-proof because its assets are exempt from seizure under provincial pension laws.

  • Tax-deferred growth - The IPP provides an opportunity for continued tax deferral after retirement if the member elects to take a pension from the IPP.

  • Past years of service - It is possible to contribute for recognized years of service before the IPP was established. For this to occur, the company must have paid the member T4 income (salary, bonuses, etc.).

  • Terminal funding at retirement - The Individual Pension Plan assumptions can be modified at retirement to provide enhancements to the pension benefits.

  • Fiduciary oversight - Actuarial oversight of the plan ensures that the plan will be managed in accordance with applicable legislation. This provides professional services and compliance oversight that were previously unavailable in the Canadian marketplace for small incorporated professionals and business owners.

  • Assets are owned by the employee - Upon retirement and in case of plan and employment termination, the assets belong to the member and are not taxable as long as they are not withdrawn. Upon retirement and under certain conditions, excess assets can provide additional income to the member. The surplus can also stay in the plan to fund the pension benefits of family members employed by the company.

  • Fees are paid by the employer - All IPP fees are paid by the employer and are tax-deductible for the employer.

  • If the company is sold - Transferring cash from the company to the IPP upon sales of the business can assist with other tax exemptions (lifetime capital gains exemption)

  • Freedom of choice at retirement - The Individual Pension Plan provides the member with three different options upon retirement.

1.     Use the funds to purchase a life annuity (a joint life annuity guaranteed for up to 15 years).

2.     Maintain the IPP to pay a monthly pension.

3.     Roll the funds (subject to the CRA maximum) into a locked-in retirement instrument (Registered Retirement Income Fund), depending on the applicable legislation.

 

Investment Options

Individual Pension Plan Corporate sponsors have access to a full range of investment options, including guaranteed investments and investment funds.  Guaranteed investments, offered for 1 to 10 year terms, are designed for plan seeking stable returns and capital protection at maturity.  The assets invested in guaranteed investments are protected by Assuris (a non-profit organization that protects Canadian policy holders when a life insurance company becomes insolvent) according to the applicable terms and conditions.  Pension investments are held and managed by iA Financial Group (Industrial Alliance).

Investment funds offer a wide range of risk levels and return perspectives.  In fact, the IPP's complete line of funds allows plan sponsors to maximize the diversification of their assets, for both asset categories and investment approaches.  No minimum amount is required to invest in investment funds.  Some funds may be managed by external investment firms based on the plan's varying needs.  No fees are incurred should assets be moved from one fund to another.

 

The Altruistic Service Advantage

Implementation of the IPP is complex and involves significant coordination.  Jim Pelot, CPA, CA  and Trevor Belanger, CFP® will be your quarterbacks in this ongoing process.  Jim's expertise in implementation and maintenance of your IPP are increasingly known across Canada as the IPP becomes more widely known and utilized as a wealth extraction strategy for business owners.  

All fees charged for the IPP are tax-deductible.  These fees include the following services:

  • Establishment of the plan and monitoring of your plan

  • Preparation of the plan text and all other documents and forms required to register the IPP

  • Registration of the plan with the Canada Revenue Agency and the applicable provincial authority, if required

  • Required amendments to the plan in response to changes in applicable legislation

  • Initial actuarial valuation and subsequent actuarial valuations (every three years in most cases), to determine the contribution amount an ensure the plan is properly funded

  • Valuation required for the purchase of past service

  • Annual information returns

  • Annual member statement

  • Assistance with administration issues

  • Calculations of the termination of employment, death and retirement benefits

  • Record-keeping of the plan administration data

  • Annual calculation of the pension adjustment (PA)

  • Monthly report on investment fund returns

  • Various investment-related publications: Monthly Update, Quarterly Update, Annual Financial Report on Investment Funds

Is the IPP always your best solution?

As a business owner, you are always looking for the most profitable, tax efficient, creditor protected solution.  If you are younger than 40, you may choose alternatives until this key divergence age is reached.  We are happy to discuss these options with you.

To discuss your particular situation and the solutions which are optimal for you and your business, please Contact Us