Individual Pension Plans – A Primer

An Individual Pension Plan (IPP) is a defined benefit pension plan created/sponsored by a corporation for the benefit of an employee/shareholder.

Essentially, the IPP operates under the same guidelines as a large pension plan for employees of entities such as public corporations, universities and governments. However, an IPP can be run by a private corporation for the benefit of the owner or key employee(s).

The plan operates to pay the employee a retirement pension based on their earnings and length of service to the corporation. Unlike RRSPs where the retirement income from the RRSP is based on the contributions and investment success, the sponsor of the IPP (i.e.: the corporation) is required to pay the benefits based on earnings and service, and will have to increase funding to the plan if necessary.

The key reason for doing an IPP is because it can enable the employee/shareholder to accumulate significantly more registered retirement savings vs what could be accumulated in an RRSP. For example, it could be possible to have several hundred thousand dollars more in an IPP at age 65 vs what could be accumulated in an RRSP – even with maximum RRSP contributions and decent investment returns.
An Individual Pension Plan does not make sense in every situation. However, if the employee/shareholder is over 40, with more than 10 years of employment income in excess of $75K per annum from the corporation, then it would be worth evaluating.

Opening an Individual Pension Plan is quite straightforward. An actuarial consultant does the calculation of the required funding for the plan. The plan is funded through a tax-deductible contribution from the corporation and a transfer from the employee/shareholder’s RRSP. The plan is an investment account that can be managed by any approved investment firm.
If you are the owner or key employee of a private corporation and wish to learn more about IPPs then request a call or meeting with one of our Investment Advisors who can explain in greater detail how IPPs work and who can arrange an actuarial review of your situation at no cost.