The pension landscape in Canada includes two primary methods of tax-deferred savings for retirement. They are Defined Contribution & Defined Benefit plans.
DEFINED CONTRIBUTION (RRSP)
Defined contribution plans are well known and include the most common Registered Retirement Savings Plan (RRSP). As the name suggests, the contributions into these plans are “defined” or known. The annual RRSP contribution limit for RRSPs is 18% of earned income, up to a maximum of $30,780 in 2023. The retirement income that these contributions will ultimately provide in retirement, however, is completely unknown and will depend on the investment results that you can achieve overtime. With an RRSP there is no opportunity to overcome poor market performance or a sudden decline in assets as you near retirement.
DEFINED BENEFIT PENSION
Defined Benefit plans provide a pension promise in retirement based on a specified formula which includes career earnings, years of employment and age at retirement. If asset returns do not cooperate in the short-term then additional tax-deductible contributions are permitted in order to boost the pension assets to a “fully funded” level. As a result, Defined Benefit plans provide greater retirement security as pension income can be guaranteed and indexed to inflation.
THE OPPORTUNITY
The Individual Pension Plan (IPP) provides established business owners and professionals with the ability to create their very own Defined Benefit pension plan sponsored by their corporation. This retirement savings strategy is used in lieu of RRSPs, and allows for a significantly higher level of income to be contributed toward retirement on a tax-deductible basis.
PAST SERVICE CONTRIBUTIONS
In addition to greater annual savings limits, Individual Pension Plans also provide the opportunity to make past-service contributions to recognize employment history that occurred prior to the commencement of the pension plan. Past-service contributions provide an immediate boots to retirement assets and can also provide substantial tax savings for the corporate sponsor.
RRSP vs. IPP Contributions (2023)
* Age 55 IPP contribution includes past-service contribution.
65
Greater Annual Tax Deferral
Keep more of what you earn by making your personal retirement security a deductible business expense. Deduct up to 65% more annually through your business than compared to an RRSP.
A smarter retirement solution for business owners.
The Individual Pension Plan (IPP) provides high income earners with a higher standard of retirement security compared to RRSPs, by deferring more tax during your working years.
PENSION BENEFITS
- Make immediate past-service contributions
- Enjoy higher annual contribution limits
- Build a creditor-proof asset that is protected from professional liability
- Overcome unexpected market fluctuations with additional contribution room
- Enhance pension benefits upon the sale of a business or early retirement
- Deduct your investment expenses against corporate income
- Split pension income with your spouse in retirement
Asset Accumulation – RRSP vs. IPP
* $615,000 RRSP Beg. Balance, $0 RRSP Contribution Room, Salary $175,500, Maximum Contributions, 7.5% Return.
A supersized RRSP for high-income earners.
Additional Tax-Savings
Take advantage of deducting all investment and plan administration expenses within your corporation. A benefit that is simply not available within an RRSP.
Enhanced Retirement Benefits
Enhanced tax-deferred savings room allows you to increase your retirement nest egg and establish greater long-term financial security.
Intergenerational Transfer of Wealth
Unlike an RRSP, upon death any unused pension assets can be transferred to other family members within the business on a tax-deferred basis.
Fiduciary Oversight
With our experienced team of actuaries and investment counsellors, your savings are being guided by a team of highly trained professionals.
