Individual Pension Plans

In the case of past services transfer – full Present Value of the pension can be transferred tax-free and has greater benefits if you compare it to RRSP Plans. A retirement savings plan that allows bigger tax-deductible contributions than an RRSP. It works like a defined benefit plan and must follow Canada’s pension plan rules.IPP is essentially an RRSP upgrade, with three main differences:

IPPs have significantly higher limits to contributions;

They have creditor proofing; In essence, IPPs effectively guarantee the holder an income for retirement;

All IPP contributions, setup fees and maintenance fees made by a corporation on behalf of the key person are fully tax deductible to the corporation. Interest on funds borrowed to top up IPPs are also fully tax deductible by the contributing company;

At retirement, the IPP member owns any actuarial surplus. It may be used to upgrade pension benefits, or the plan holder may pass it on to a spouse, heirs or estate. Spousal pension benefits may be upgraded to 100% in the event that a plan member retires or passes away.

Many individuals 45 and older, who believe they have many more years to work, find the option to transfer their IPP appealing because they can continue to control how the assets are invested. In addition, employees who decide to transfer an IPP to their own company or another employer will continually see their contribution room increase compared to what they would receive if they had only a DCPP or RRSP option to defer taxes from their income.

Whatever option you chose, all interest on loans to fund an IPP are a tax-deductible expense for employers and a nontaxable benefit for IPP members. RRSP loans do not have this benefit.

IPPs require specialty in such areas as tax, actuary, pensions, employment, and law. In fact, there are only one or two companies across Canada that specialize in the creation, implementation and maintenance of IPPs. It would be well worth it to explore whether IPPs are the right fit for you, your firm or your corporate clients.

The IPP does have its disadvantages. Unlike RRSPs, IPPs come with administrative costs. Although actuarial fees have dropped sharply in the last few years, it costs an average $4,000 to implement the plan, with an additional maintenance annual fee also required. Although the contributions are tax deductible, the IPP expenses are deductible if paid out of the corporate account.

Under the IPP your funds are locked-in, unlike regular RRSPs where you have access to your money, although any withdrawal is heavily taxed. And while RRSPs have the option of spousal contributions, IPPs do not. Further, participation in an IPP greatly reduces and sometimes eliminates the amount you can contribute to your RRSP, and an excess surplus in the IPP may reduce future contributions.

It is a great option for clients who are changing careers to start new business, or for professionals as doctors, dentists, consultants and engineers.