Personal Pension Plan
We believe that everyone has the right to a robust pension plan. Defined Benefit Pensions provide greater stability and wealth in retirement.
Introducing the Personal Pension Plan (PPP), unique and only for business owners and incorporated professionals.
A Personal Pension Plan is a registered pension plan with three components.
– Defined Benefit (DB): for pre-defined benefits based on your age, income and years of service; the kind of pension you often get as a government employee or with a traditional Individual Pension Plan (IPP)
– Defined Contribution (DC): operates like an RSP with a mandatory contribution of 1%; ideal if you’re younger (say under 40) or have volatile earnings
– Additional Voluntary Contributions sub-account: where you transfer your current RSP assets tax-free
Some Key Benefits to the PPP
– Using Pre-Tax money for savings
– The ability to deduct fees on the management of the investments
– Flexibility to switch between Defined Benefit, Defined Contribution, and Additional Voluntary Contributions as needed
– Creditor protection for any RSP contributions previously made
– Ability to claim 33% HST credit
RSP Limits are Too Low
– PPP offers 5 additional contributions to increase the amount of pension for a business owner or key employee and also has provisions for special payments beyond RSP maximum limits
High Risk Business
– PPP Offers creditor protection for all money in the PPP
This means even an RSP (not usually creditor protected) can be rolled into the PPP and be completely protected
To sell a business and be eligible for the capital gains exemption
– PPP helps a business to take unused cash out of the business prior to selling it rather than using a holding company (where assets are often subject to investment taxes)
– Benefits of having no inactive money in the business and the ability to add additional funds to the plan from the sale of the business
– If someone is retiring from public sector and has a pension this is a great option for them as they can move the money over to a pension they can continue to control and can have the full benefit for their retirement
Deemed Disposition on Death of RSP Annuitant
– Adult children of the company owner can be added to the pension fund of the company owner if they work for the family enterprise. Such that upon the demise of the owner, any surplus assets become available to fund the pension of the adult children/PPP members
– This means that there is no deemed disposition and no probate fees
– PPP offers business owners the ability to top up and provide funding of a lump sum through their pension up on the sale of the business
The “Coles Notes” on why one should consider a PPP over an IPP/RSP:
1. Over 20 years, assuming the same rate of return on assets as earned in an RSP, the PPP member will have over $1 M more in registered assets to retire on.
2. There are 7 new types of tax deductions inside of a PPP that you cannot find inside of an RSP:
A) Greater annual deductions ranging from $440 at age 40 to $15,000 by age 64 and beyond.
B) Terminal funding to enhance the basic pension.
C) Ability of the corporation to make tax deductible contributions to assist in the purchase of past service.
D) Special Payments (also tax deductible) if the assets of the pension plan don’t return 7.5%
E) Interest paid to lenders for contributions made for the PPP are tax-deductible
F) Investment management fees paid on any asset inside of the PPP are tax-deductible
G) Administration, trustee, actuarial fees are tax deductible.
3. Assets inside a PPP are trade creditor protected.
4. Required contributions owed by the corporation to the PPP are provided super priority in a bankruptcy and rank above secured creditors like the banks.
5. Assets inside of a PPP can pass from generation to generations without triggering a deemed disposition and because the funds do not end up in the estate, there is no probate fees either.
6. Transfers of commuted value pensions from large defined benefit pension plans to a PPP (DB Component) do not generate any excess amount tax as normally found due to Income Tax Regulation 8517 triggering immediate tax savings to terminated employees.
7. Pension Plans can avail themselves of the HST Pension entity Rebate (33% of all HST paid in connection with the pension plan is refunded to the corporation).
8. While IPPs must cease all tax-deductible contributions if they are over-funded (considered in excess surplus), under a PPP, the plan member can switch to the DC/AVC components, and while no contributions can be made to the DC account, the full 17% of salary can be made by the member.
9. Double-dip: Out of the same $100,000 salary, in the year of plan set up, a plan member could make an $18,000 PPP contribution and a $18,000 RSP contribution if that person had no earned income in the year 1990.
10. Unlocking: not only are AVC assets unlocked at all times (by eliminating the AVC provisions from the plan text), but by reducing accrued benefits and creating surplus, additional funds can be withdrawn from a PPP.
11. U/L add-on: The large tax savings/refunds created by the multitude of additional tax deductions could be used by the corporation to purchase an over-funded universal life policy with the corporation designated as the death beneficiary thereby funding the policy with $0.00 cost.
12. Early retirement: as early as age 55, with pension income splitting and $4,000 worth of pension being eligible for the pension amount non-refundable credit. RRIF income splitting only starts at 65.
13. Flexibility: being able to switch between DB and DC every year helps control pension costs. But the superior tax deductions afforded DB plans isn’t lost in a “DC” year since the plan can be amended to convert DC into DB years.
14. Fiduciary and Governance: INTEGRIS offers a ‘pension committee’ service to ensure compliance and supervision with pension officers, compliance staff and lawyers at no extra cost.
15. Purification for life time capital gains exemption: deductions created inside company when purchasing past service, borrowing or doing terminal funding/special payments, can purify a corporation to the exemption ($817,000)