Individual Pension Plan: Why Business Owners and Professionals Are Choosing it

The Individual Pension Plan (IPP) is gaining popularity among Canadian business owners and professionals for several reasons.

Business owner’s concerns about retirement

– Not being able to save or contribute enough to RRSPs because the contribution limits don’t keep pace with income

– Lack of creditor protection that could damage personal and family financial health

– Cost of investing in RRSPs may not be tax-deductible and might eat away at returns

– Interest costs are not tax-deductible when borrowing to contribute to RRSPs

– No one to look after the business owner’s best interests

– Harvesting the growth of the business and having a steady income flow

Retirement plans

Individual Pension Plan (IPP)

The IPP, established in 1991, is a way of saving for retirement and It is designed to fit the needs of business owners and professionals.

IPP’s features:

1. Pension plan structure – since the structure relies on pension rules rather than RRSP rules, there is an ability to increase retirement savings by approximately $1 million above and beyond the RRSP maximums. The IPP relies on the same federal and provincial pension legislation that governs Retirement Pension Plans.

IPP members will access more tax savings for their business and boost retirement savings by more than 60%.

FOR EXAMPLE:

A 45-year-old who earns $140,000 will save $738,908 more in an Individual Pension Plan when they retire. Between now and retirement, this person will lose $136 per day if they do not upgrade to an IPP.

2. Robust creditor protection – pension laws ensure all pension plan assets are trade-creditor protected. RRSP assets often do not receive the same protection.

3. New corporate tax deductions – The IPP generates new and additional tax deductions/savings that are not available to RRSPs: buying back past service, terminal funding, special payments and investment management fees.

4. HST refund – pension plan administrators can claim the 33% HST refund that is not available to RRSP savers.

5. Fiduciary oversight & administrative responsibility –the pension provider is legally obligated to act in plan members’ best interests. Practically, the provider negotiates service provider fee reductions, transfers group discounts to plan members and they cap fees, among other things. Additionally, the pension provider ensures member plans comply with provincial & federal legislation and complete and file all necessary documentation. The IPP allows the client’s corporation to delegate plan administration and compliance responsibilities to the pension provider offering a simplified turnkey solution.

6. Turnkey solution – the pension provider offers the services a plan member will require to manage a pension plan – all under one roof. This includes actuarial services, pension officers, and pension-related legal advice.

Client-controlled custody and investment management – business owners can enjoy the benefits of receiving first-rate money management through their trusted financial advisor, while having a secure and tax-efficient pension plan through the provider.

For inquiries about the Individual Pension Plan, and to receive a complimentary retirement savings illustration, contact us at DFS Private Wealth. We’re happy to introduce and discuss this pension plan option to business owners, entrepreneurs and professionals!

Sources: Statistics Canada

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