Pension Plans

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High Income earning professionals, senior executives and business owners face a retirement dilemma. The annual contribution limit on RRSPs effectively limits the amount an individual can save on a tax deferred basis. As a result many high-income earners do not accumulate enough tax-sheltered savings to match their pre-retirement income. Setting up an Individual Pension Plan may be a solution to the problem.

What is an IPP?

An IPP, or Individual Pension Plan, is a defined benefit pension plan that is set up for one individual. Pension plan contributions increase with age. Contributions are made over time to ensure there is enough money in the plan to fund your pre-determined retirement benefit.

The IPP is like an RRSP in that it uses an investment account that accumulates over time to provide retirement benefits. The major difference is that an IPP allows for much larger tax deductions.

Who can take advantage of an IPP?

Ideal IPP candidates are usually incorporated business owners or professionals, or highly paid executives. Clients should earn T4 income of over $100,000, be in their mid-forties or older, and intend to continue working for at least five more years.

The most significant advantage of an IPP is the allowable contribution limit, which is generally higher than the contribution limits available under an RRSP. This enables the plan beneficiary to accumulate a significantly larger pool of retirement savings than would otherwise be accumulated using an RRSP. Other potential advantages include:

• The ability to make pension contributions in respect of past employment service.
• A guaranteed amount of retirement income if the employer agrees to fund additional contributions should the IPP realize poor investment returns.
• Participation by the employee in the investment decisions made by the IPP.
• Protection from creditors of both the employer and the employee (under provincial pension legislation).
• Multiple retirement income options (annuities may be purchased from an insurance company, funds may be transferred to an RRSP or the IPP may pay an annual pension).

Will an IPP work for you?

The answer will depend upon your circumstance. Please contact me to discuss

Retiring with an employer sponsored pension plan.

Retiring employees or those who change careers will generally have a pension plan through their employer. These individuals will need to decide what to do with their pension and the decision will definitely impact their financial future. Some individuals may not have a choice with respect to their pension but for those that do the decision is more simplistic than originally thought once the choices are clearly understood.

What option should I take?

There are a variety of contingencies to consider that include taxes, your other potential sources of retirement income, how long you expect to live and estate planning. The three options are to take the amount of the pension are; a lump sum, to stay with your employer's pension or to transfer the commuted value to an annuity. Each choice has it's own set of considerations so careful and comprehensive planning should be implemented.