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 participant (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.