Individual pension plan (IPP)
Contributions are higher than the maximum allowable for RRSPs
- A defined benefit pension plan designed for a single individual.
- For business owners and high income earners
Target client
- A business owner or senior executive aged 45 and over
- A salary of $75,000 or over
- Owns directly or indirectly at least 10% of the shares of the company
- Has accumulated years of service prior to plan inception that create contribution eligibility
Plan type
- Business: contributions are paid by the employer
- Defined benefit: benefits are predetermined (an actuary calculates the contributions to guarantee the amount)
Taxation
Contributions are deductible from business income
Advantages
High contributions
- You can contribute more than RRSP allowable contributions.
- Retirement income is guaranteed based on the expected benefit of the plan.
Optimized capital
- You can buy back years of service prior to plan inception.
- The cost is shared between the plan member (through RRSP contributions up to plan inception) and the business.
- The employer's share is deductible from business income.
Shortfalls caught up
- An actuarial valuation takes place every 4 years.
- Any shortfall is paid up by the business, immediately or over several years.
Drawbacks
- Administrative costs and requirements are involved.
- The services of an actuary are required.