Kevin Roberts, BBA, CIM, FCSI
Tom Jackson, BSc, CIM, FCSI
Mark Moulson, CFP, CLU, TEP
Marlene Fortin, FLMI, ACS
1127 Barton St.
Thunder Bay, ON
Individual Pension Plan
An Individual Pension Plan (IPP) is an attractive alternative to an RRSP for owner-managers 45 years of age or older. An IPP is a defined benefit pension plan for owner-managers and their spouses. The corporation makes tax-deductible contributions to the IPP based on actuarial valuations and, in return, the member receives a guaranteed lifetime pension at retirement.
Features & Benefits Summary
- An IPP is a registered defined benefit pension plan typically established for the benefit of a single participant. A defined benefit pension plan is designed to provide a lifetime pension starting at a certain age. The amount of the pension is determined by formula, and the contribution equals the cost of providing that pension (as calculated by an actuary).
- If the same or a related company employs the spouse, the spouse may be added to the IPP.
- Suitable candidates for an IPP are: small business owners, professionals (e.g. doctors,
lawyers, dentists, and accountants) in provinces where they are allowed to incorporate, and executives with the support of their company’s management.
- To qualify, the IPP plan member must be an employee receiving T4 income, and be
serious about planning for retirement. The company sponsor must have the financial
resources to fund the IPP on an ongoing basis.
- Canada Revenue Agency requires a transfer from the plan member's RRSP to offset the contribution generated for past service (i.e. years 1991 to 2004). The Qualifying Transfer
is determined by calculating the Pension Adjustment that would have been applied in each
year of past service assuming that the individual had been in a defined benefit pension plan during those years. The total of the Pension Adjustments for those years less $8,000
and any unused RRSP contribution room equals the Qualifying Transfer.
- The former $8,000 RRSP over contribution is still available under an IPP and is
- Contributions to an IPP are tax deductible to the employer.
- Expenses of the IPP (including actuarial consulting fees, interest on funds borrowed for
contributions, and investment related fees) are tax deductible when paid directly by the
- Contributions made within 120 days of the end of the fiscal year are deductible within that fiscal year.
- The IPP assets may be invested by a trust company, under a Trusteed self-directed
vehicle, or under a life insurance company contract.
- Generally, if an investment is allowed under an RRSP, it is acceptable for an IPP. The
30% foreign content limit for all registered plans applies (until the new federal budget is
approved) and in certain provinces there is a 10% investment concentration limit designed
to ensure broad diversification of plan assets.
- Except in certain provinces, IPP assets are locked-in and may not be withdrawn in cash
- Same Termination, Retirement and Death Benefits as other Defined Benefit Plans.
- For individuals over age 40, an IPP allows for higher tax deductible contributions than an RRSP
- Assets within an IPP can be protected from creditors
- In most cases, significant lump-sum past service contributions can be made when first
establishing an IPP
- Higher tax deductible ongoing contributions…the older the member, the greater the
- IPP contributions may be topped up if investment returns are insufficient
- Tax-deductible lump sum contributions at the time of actual retirement are possible in
- Allows small business owners to defer taxes and plan for retirement.
Please click here to learn more about IPPs.