If you haven’t already thought about starting a Individual Pension Plan (IPP), they’re worth looking into. The IPP is a registered plan for business (CCPC) owners and incorporated professionals such as doctors, lawyers, architects and consultants. It has the flexibility to have voluntary contributions and defined pension contributions. The IPP also overcomes some of the limitations of the tried-and-true Registered Retirement Savings Plan (RRSP).
Features of Individual Pension Plans
- Higher contribution limits than RRSPs
- Ability to invest in assets not eligible for RRSPs
- Full-service plan administration
- Can be managed by your existing financial advisor
- Fiduciary obligations delegated to the pension provider
- Contribution flexibility – adjust your annual contributions depending on how your business is doing
- Superior creditor protection
- All fees are tax-deductible and admin fees eligible for HST rebate
Offers more than an RRSP
One of the advantages of the IPP compared with the RRSP is that the IPP allows you to split pension income with a spouse 10 years earlier. And it does so with advantages at just about any pension income level. Here’s how it works:
With an RRSP, to split pension income the pensioner must be over 65. If you have an IPP, you can choose to start splitting your pension income when you’re 55. If you’re in the situation where your partner does not have a pension plan, you can start generating tax savings 10 years sooner than with an RRSP. Here are some examples:
If you have an annual pension of $50,000 and your spouse’s income is $20,000, pension splitting will save you $1,200 in taxes each year. If your pension is $100,000 and your spouse has no income, you could save up to $6,760 per year. Even if you both have good incomes you can save a little – if your pension is $100,000 and your spouse has an equal income, you can still save $400 in taxes each year (calculations based on 2014 Ontario income tax rates).
Another important feature of the IPP is superior creditor protection. In half of Canada’s provinces, RRSPs are not protected against the claims of creditors (unless the assets are within an insurance contract issued by a life insurer for which a beneficiary has been properly designated). Even in jurisdictions where RRSP holdings are protected from creditors, no protection is provided for contributions made in the 12 months before the bankruptcy date.
Pension plans, in contrast, are fully protected from creditors, even if bankruptcy is declared. If your business operates in a volatile industry, this could be a key feature for you.
An important advantage of IPPs is their ability to invest in certain asset classes not available, or essentially not available, to RRSP investors. One example is investing in shares of private companies, which is very difficult within an RRSP (though technically legal). A big advantage of access to these types of assets is that they allow you to diversify beyond the public markets. Private equity very often outperforms the public market. With an IPP, that outperformance is tax-deferred.
Another bit of savings comes from the fact that pension plan administrators can claim a 33% HST credit on fees they pay to manage PPPs, something not available to RRSP administrators.
Is it right for you? Talk to DFS Private Wealth
You can read more about the IPP, but because analyzing your individual circumstances is critical to the investment decisions you make, get in touch with DFS Private Wealth for a personal assessment of your situation and we can discuss whether an IPP is the right retirement savings solution for you. DFS Private Wealth will work with you to ensure that your retirement needs are met. You’ve invested a lot of time, money and energy in building your business. Our expert financial advisors will work just as hard to provide you with the level of service you expect.