Individual Pension Plan (IPP)

The IPP provides personalized financial solutions that will help you ensure your
retirement is everything you want it to be. As the owner or executive of a business, you care about your company’s future. However, you should also start thinking about your own future, in other words, your retirement.

If you think that you may have neglected your retirement goals
in the past, don’t worry, as you can still make up for lost time. Fortunately, there exists a registered financial product that benefits both you and your company, and that will ensure you the comfortable retirement you deserve: The Individual Pension Plan (IPP).

What is an IPP?

• An Individual Pension Plan (IPP) is primarily a registered retirement plan along the same lines as an RRSP. The contributions your company makes on your behalf are non-taxable before you retire.
• An IPP is also a way for your company to increase your retirement savings, helping you to achieve your objectives. In exchange, your company can deduct these contributions from its taxable income.
• This type of plan shares the characteristics of a defined benefit plan. What does this mean for you? Once the plan is instituted, you know the amount of the annuity you will receive upon retirement. Why is this important? It allows you to more accurately determine your retirement income and the contributions you must make to achieve this goal. In addition, because this plan is instituted for you alone, all of the funds in the plan automatically belong to you.
• An IPP permits larger contributions than an RRSP once you reach around the age 40. It also provides for an annual return of 7.5%. With these unique features, your retirement savings grow rapidly.
• Under this plan, you will be guided by specialists who work with you to determine the annuity, contributions, and investments that best suit your financial profile.
• We, as your financial advisor, will work with Actuaries, the IPP provider (insurance company) and with you to monitor your plan and ensure you achieve your investment goals.

How do I know if an IPP is right for me?

• The IPP is a financial vehicule designed for business owners and executives whose RRSP contribution ceiling is too low to allow them to attain their retirement goals.
• The IPP enables companies to fund their retirement plan and at the same time benefit from attractive tax savings.
• The IPP is ideal for individuals from age 40 and over earning an annual salary of over $75,000.

IPP Advantages

• Annual contribution ceiling is higher than an RRSP. This allows you to accumulate more savings than an RRSP, thus increasing your retirement income.
• Tax-deductible company contributions. Contributions to your plan are made by your company. Therefore, regular or special contributions as well as the costs of setting up and monitoring the plan are fully tax deductible.
• Tax-sheltered returns. Your investment returns are also tax sheltered, allowing you to boost your retirement savings. Since the plan is for you alone, all funds belong to you.
• Elect to purchase past service (to increase contributions and retirement income). You can make up for the years of service when you may not have contributed enough for your retirement. Electing to purchase past service allows you to inject additional funds into your plan today. This provision, which is available as soon as your IPP is instituted, greatly benefits those who wish to take an early retirement or top up their pension plan.
• Annuity upgrade possible upon retirement. When it is time for you to retire, your company can substantially upgrade your plan with additional tax- deductible contributions.
• 7.5% return. If the investments return is under 7.5%, the company may cover the shortfall. This special contribution is deductible for the company and non-taxable to you.

Let’s compare RRSP and IPP contributions

RRSP

The Income Tax Act limits your RRSP contribution
to 18% of earned income for the previous year or the
maximum contribution, whichever is less.

For 2019, the maximum contribution is $26,500.

IPP

The Income Tax Act does not limit contributions to IPPs, but it does define the amount of the life annuity payable upon retirement. The life annuity will be equal to 2% of annual income for each year of membership.

The maximum annuity in 2016 was $2,890 per year of service. It was increased to $2,914 in 2017, and will be indexed yearly thereafter. A maximum contribution can be calculated from this maximum benefit based on each individual’s particular situation.

Purchase of Past Service

Purchasing past service is a proven financial tool that you can use to make up for years when you may not have
put aside enough for your retirement. If you have never had a supplemental retirement plan, you can accumulate
entitlements for each year you have been employed by your company since 1991. These entitlements can add up to
substantial contributions that significantly boost your retirement plan.

Early Retirement

If, at age 60, you decide to sell your company or retire early, the company can upgrade your pension plan and make a special tax-deductible additional contribution.

Purchasing past service is funded as follows:

• First a transfer of a fraction of the RRSP to an IPP fund subject to a minimum amount equal to the PSPA;
• The balance not financed by the RRSP transfer may be paid by the company and becomes an eligible expense.

FAQs

What impact will an IPP have on my company?

Regular or special contributions and the costs of setting up and monitoring the plan are tax deductible for the company. Because IPP contributions are not considered salary income, they do not generate payroll taxes.

What will happen to my RRSP?

IPP membership practically eliminates the need for new contributions to an RRSP. Your existing RRSPs can continue to grow or be partially transferred to the IPP, especially when purchasing past service, thereby providing all the benefits of an IPP.

What products can I choose from upon retirement?

There are two options:

• a life annuity that will guarantee you an annuity during your lifetime, with, if requested, survivor benefits in the event of the annuitant’s death;
• a transfer to an RRSP or a RRIF, which are non-locked-in plans that provide a lot of freedom.

What will happen to my retirement savings should I die?

If you die before retirement: the accumulated amounts will be paid to your beneficiaries; •

If you die after retirement: several choices are available, depending on the annuity or plan chosen at the time of retirement.

What happens in the case of termination of employment?

If you terminate your employment before retirement, the amounts accumulated in the plan will be transferred to an RRSP.

What happens if the company is sold?

With the purchase of past service, the transfer of funds from the company to an IPP reduces shareholders’ equity and may facilitate the sale of the company. In addition, you may be able to upgrade your annuity with a special contribution

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