BMO Nesbitt Burns
2 St. Clair Ave. West
|An Individual Pension Plan (IPP) is a pension plan established for a single individual who is interested in maximizing his or her tax-assisted retirement savings. An IPP may allow a small business owner, owner-manager or senior executive to benefit from the retirement savings and tax deferral advantages of a registered pension plan. A typical IPP provides what is called a defined benefit; the amount of pension is determined at retirement by reference to a formula. This is different from an RRSP or a defined contribution pension plan, where only the account balance itself is available to provide benefits at retirement.
Pension plans registered under the Income Tax Act permit the deferral of taxation on employee compensation. Employer contributions are tax deductible, and are not subject to employee withholding taxes. Employee contributions are also tax deductible. Investments earnings on these contributions grow tax-free until they are used to pay benefits under the plan.
While flexible in terms of its settlement options, the basic purpose of an IPP is to provide a retirement pension to the plan participant. In the right circumstances, an IPP permits much larger tax deductible contributions than an RRSP. An IPP also normally offer the plan member a greater degree of creditor protection than an RRSP. With an IPP, a member will no longer be able to contribute to an RRSP in future years.