Individual Pension Plans (IPP)

The IPP is a defined benefit pension plan that is registered with the Canada Revenue Agency (CRA) and the provincial authority, if required. Defined benefit means that the pension amount is determined by a specific formula when the plan is established. The retirement income is therefore generally greater than the income provided by an RRSP and the annual contribution amount is established by an actuary, based on factors such as age and past T4 earnings.

The IPP offers many benefits such as:

  • Substantially higher contributions are available over RRSP limits in most cases.
  • The contributions and costs related to an IPP are tax deductible and paid by the company.
  • The IPP is creditor proof while most RRSPs are not.
  • The IPP provides an opportunity for continued tax deferral after retirement, if the participant elects to self-annuitize.
  • If possible, under certain conditions, to contribute for past years of service.
  • It is possible to modify the IPP provisions at retirement to maximize the benefits with: indexation of the annuity, early retirement without reduction and bridging benefit. These changes result in extra contribution which is also tax-deductible for the company.
  • Upon retirement and in case of plan and employment termination, the surplus can belong to the participant and it is not taxable as long as it is not withdrawn. Upon retirement, the surplus can provide additional income to the participant.
  • The fees can be reimbursed by the employer.
  • If the shareholders’ equity is very high, it may be difficult to sell the company. Transferring amounts to an IPP reduces shareholders’ equity.