What is an IPP?

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An Individual Pension Plan (IPP) is a made-to-measure plan designed for company owners as well as self-employed individuals whose average annual income is generally over $100,000.

The IPP is a plan...

  • set up for one person only or for a few people and funded by the company (tax-deductible)
  • which contains a defined benefit component that provides retirement income generally equivalent to 2% of the average of the three highest annual salaries earned for each year of service credited.
  • which allows savings to grow tax-free
  • which can be maximized by transferring the plan member’s RRSP

This document presents several of the advantages of the IPP and the Retirement Compensation Arrangement (RCA) over an RRSP.

Beneficial for owners as well as businesses

An IPP is often set up once a company has generated significant earnings and wants to avoid paying too much tax. Employers can choose to pay contributions into their IPP, which will be an expense for the company, reducing its earnings and therefore its tax burden.

Contributions made to the plan by the employer are not a taxable benefit for the plan member.

In other words, company owners can pay contributions into their own IPP to save money for their retirement and cut their company’s tax bill.

What are the benefits?

Since for this type of pension plan, the plan member and the employer are very often the same person, an IPP offers a number of benefits from both the member’s and the employer’s perspective.

Advantages for plan members

  • Plan funded by the company
  • Allows more money to be saved for retirement than an RRSP or IPP
  • Recognizes years of past service, increasing the retirement pension
  • Customization is possible: indexation of benefits, early retirement without reduction and bridge benefit
  • Assets grow tax-free up to retirement; possibility for assets to continue tax-free growth after retirement if pension benefits are drawn directly from the IPP
  • Assets in a IPP are exempt from seizure by creditors
  • Contributions to social programs (EI, CPP) are not applicable to money invested in a IPP

Advantages for employers

  • Significant tax savings: contributions reduce company earnings
  • Assets in a IPP reduce shareholders’ equity, which can facilitate the sale of the company