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Individual Pension Plans (IPP)

Individual Pension Plans (IPP)

for Advisors

What is an Individual Pension Plan?

An Individual Pension Plan (IPP) is a defined benefit pension plan designed for business owners of incorporated companies. An IPP allows a business owner (age 40 and over earning $100,000+) to increase their retirement savings and establish long-term financial security through tax-deductible contributions.

How are IPP contributions calculated?

IPP contributions are determined by a series of actuarial valuation reports in order to ensure your client has sufficient assets at the time of his/her retirement. Annual income at retirement age is calculated using:

  • Your client’s career T4 and T4PS earnings
  • Your client’s age
  • Assumptions determined by the actuary, which are acceptable to Canada Revenue Agency (CRA)

Contributions are graduated by age, so the older your client, the more their company can contribute. IPP contributions first exceed RRSP contributions around age 40. The annual contributions compounded at a 7.5% net annual rate of return will ensure your client’s plan has adequate assets to provide for their retirement benefits.

What happens at retirement?

Once your client retires, they have a choice of retirement vehicles. These include a monthly pension from the plan, an annuity, a Life Income Fund (LIF), or a Locked-In Retirement Income Fund (LRIF).

If your client decides to purchase an annuity, as the financial advisor, you should obtain a market comparison and choose the insurer. The plan will then transfer funds from the IPP to the life insurance company to purchase the annuity. Annuities can be either single life, covering the life of the plan member only or, if married at date of retirement, a joint & survivor (J&S), with payments that may reduce on the death of the member. The J&S option usually includes a minimum guaranteed period of 5 years and subsequent payments to the surviving spouse in full or reduced by a percentage selected at the time of retirement.

Key Takeaways

  • Assets within an IPP are locked-in and can, in most circumstances, only be withdrawn during retirement.
  • There is little contribution flexibility – shortfalls in asset values normally require further contributions to put the plan back on track. This tax-deductible additional funding can be made over several years.
  • IPP will reduce or eliminate RRSP room in the year of setup, and in most situations, new RRSP room will be limited to $600 per year moving forward.

Setup Process

  • Step 1
    Request a Personalized Quote

    Complete our confidential IPP questionnaire: download the PDF. Your GBL representative will prepare a custom IPP quote at no cost within 1-2 business days.

  • Step 2
    Consultation

    Upon receipt of your IPP quote, please contact your GBL representative who is available for consultation to answer any questions that may arise.

  • Step 3
    Setting up the IPP

    Once your client decides to set up an IPP, you & your client will receive our IPP registration package. Forms can be completed and returned by mail, email or fax to your GBL representative. Please allow 5-10 business days to receive your IPP documentation for signing.

  • Step 4
    Execution

    Your GBL representative is available to assist in the signing process and to answer any last minute questions. Upon final execution of the IPP agreements, GBL will register the plan with Canada Revenue Agency (CRA) and the provincial authority (if applicable).

  • Step 5
    Fund the Plan

    Upon CRA approval, you and your client will identify investment objectives to ensure assets are invested according your client’s preferences and CRA funding regulations.

IPP Annual Administration

The administration process is completed in 3 parts – please take note of any deadlines. Visit our resources section for additional information, downloads and links. If you have any questions related to this process, contact us.

Account Summary Form

Deadline is March 1

The annual summary form is sent to the Advisor (or in some cases the Accountant) in January of each year. This form requests the following information:

  • Contributions made to the IPP
  • RRSP Transfers into the IPP
  • Value of the Plan assets at Dec 31
  • Portfolio holdings at Dec 31

IPP Investment Account Summary 

Pension Adjustment Form

Deadline is prior to issuing a T4 Slip for Plan Member(s)

A pension adjustment (PA) form is mailed in January to the Plan Sponsor.

A pension adjustment and the plan’s registration number are required to be included on each active IPP member’s T4 slip.  Reported pension adjustments are used by CRA to adjust personal RSP room and are not equal to the annual IPP contribution.  To obtain pension adjustment information prior to the corporate T4 filing deadline of February 28th, the sponsoring company can complete the PA form and submit to our office by e-mail, fax or mail and GBL will calculate and confirm the IPP information to be included on the plan member’s T4 slip.

Click here to calculate your pension adjustment.

Pension Adjustment Information 

Annual Information Notices

Mailed to the Sponsoring Company in January of each year, this letter requests information from the sponsoring company required to complete the annual administration requirements for an IPP.

Notice to Individual Pension Plan Sponsors (Alberta)

Notice to Individual Pension Plan Sponsors (Ontario)

Notice to Individual Pension Plan Sponsors (BC, MB, PEI, QC)

Notice to Individual Pension Plan Sponsors (NB, NFLD, NS, SK)

Frequently Asked Questions

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Who determines when the member can collect?

CRA allows retirement income to commence as early as age 50.

What are the maximum allowable benefits available to the member?

IPP maximum benefits for the current year are reached at $134,834 of employment earnings for 2013. If the member earns over this amount, CRA does not permit the excess to be factored into the calculations of the benefits and contributions.

Who owns the pension plan?

The company or Professional Corporation sponsors the plan. The trustees hold the assets on behalf of the members and their beneficiaries.

What if the plan does not earn a 7.5% rate of return?

Every three years there is a valuation completed by the actuary. This analysis of the plan will indicate its funded status. In the event a 7.5% per annum compound rate of return was not earned by the assets of the fund, the sponsoring company must make additional tax-deductible contributions to bring the fund back on track. This is not a penalty It is simply to ensure that the pension plan is properly funded. In fact, this gives a distinct advantage over defined contribution pension plans and RRSPs. These contributions can be amortized over a period, generally, of up to 5 years.  If the fund earns more than 7.5%, the surplus can be retained in the pension plan to grow to a certain point and may create a contribution holiday.

What happens to my RRSP room?

Your RRSP room will be adjusted once you set up a pension plan. This adjustment is called a Pension Adjustment or (PA).

Can the plan be indexed to cost of living increases?

A lump sum additional contribution can be made at the time of retirement to increase the indexation of the pension by an additional 1% per annum compound over that previously assumed by the actuary.

What are the restrictions on investments held in an IPP; are they the same as RRSPs?

In an IPP, no more than 10% of the portfolio can be held in any one stock. With respect to mortgages, the maximum overall holdings are 25% of book value with no more than 5% invested in any single mortgage.

What happens if the sponsoring company cannot afford to make the minimum annual contributions to the IPP?

Pension contributions must normally be made each year unless pensionable service is suspended. The plan sponsor may borrow to fund the plan. If this is not an option the plan sponsor can elect to wind up the plan and turn it into a Locked-in Retirement Account (LIRA) or purchase an annuity from the assets of the fund.

What happens to the IPP in the event of a marital breakdown?

Provincial laws require pension plan assets to be treated, in a manner similar to RRSP assets, as matrimonial assets to be divided between the member and spouse.

What is past service?

CRA allows pension plans registered today to capture past service as if the member was in the pension plan as far back as January 1, 1991. Past service can only be captured for service when the company was incorporated and the member was an employee receiving income from that incorporated company.
In addition, the member will be required to rollover a specified portion of RRSP assets. The plan sponsor will be permitted to make past service contributions to the IPP in addition to current service contributions.

Why combine multiple family members working in the same business into one IPP?

A single plan works best with family members such as parents and children. The member has the ability to “succession plan” where family members are working in the business.

Where siblings own a business it is advisable to establish multiple plans. It is best to discuss these types of situations with your GBL Representative.

What is "projected additional funding" that the plan sponsor can make upon retirement, if any?

Upon retirement, plan sponsors are permitted to make a tax-deductible lump sum payment into the pension plan. This amount is calculated by the actuary to create the additional benefits available at retirement which would include unreduced early retirement benefits, bridging benefits (replacement for OAS and CPP to age 65) and full CPI indexing.

How do you calculate a Pension Adjustment (PA)?

For more information please visit CRA’s website for T4084 pension adjustment Guide CRA.

Why the need for incorporation?

CRA regulations for Individual Pension Plans require a corporate plan sponsor. Professionals may create a Professional Corporation (PC) to act as plan sponsor however past service benefits do not apply prior to the establishment of the PC.

Who administers the Individual Pension Plan (IPP)?

The pension plan will be registered by GBL Inc. All annual administration is also performed by GBL Inc. with the help of the Financial Advisor and/or the client’s Accountant.

Who is responsible for the investment of the IPP assets?

The investments are the responsibility of the member (who is generally appointed Investment Manager) who in turn arranges for his Financial Advisor to place the plan assets into suitable investments.