It depends on your age, salary and how consistently your corporation can contribute. For owners over about 40 with a steady salary, an IPP can allow considerably more room than an RRSP. For younger owners, or owners paid mainly in dividends, an RRSP is often simpler and similar in value.
Individual Pension Plan (IPP)
Individual Pension Plans for Incorporated Business Owners
A pension plan your corporation sets up for you. For many owners over 40 who pay themselves a salary, it can allow larger tax-deductible contributions than an RRSP.
What It Is
A defined benefit pension, built for one owner
An Individual Pension Plan (IPP) is a registered defined benefit pension plan that your corporation sponsors, usually for you as the owner and sometimes for a spouse or family members who work in the business and earn a salary.
Instead of you contributing to an RRSP from personal, after-tax income, the corporation makes the contributions. An actuary sets how much can go in each year, based on your age, your salary from the corporation and your years of service. Contributions are generally tax-deductible to the corporation.
Because the allowable amounts are designed to fund a pension, they rise with age. For many owners in their 40s, 50s and 60s, that means more room than an RRSP, and the gap tends to widen as you get older.
At a glance
- Funded by your corporationContributions are generally deductible to the company
- Based on T4 salaryDividends don't create pension room
- Room grows with ageOften more than an RRSP after about age 40
- Past service may be fundableYears back to 1991 with salary from the company
- Ongoing obligationsActuarial valuations, filings and funding rules
How It Works
From set-up to retirement
Set up the plan
The corporation establishes and registers the plan. An actuary designs it around your salary history and age.
Fund past service
Eligible years back to 1991 may be recognized. CRA rules generally require part of that cost to come from existing RRSP savings or room first.
Contribute each year
The corporation makes annual contributions set by the actuary. Valuations at least every three years adjust them up or down.
Retire
Take a pension from the plan, buy an annuity, or transfer the value out, subject to the plan rules and locking-in limits.
IPP vs RRSP
How an IPP compares with an RRSP
A general comparison. Your actual numbers depend on your age, salary history and plan design, which an actuary calculates.
| RRSP | Individual Pension Plan | |
|---|---|---|
| Who contributes | You, from personal income | Your corporation |
| Tax deduction | Personal deduction | Generally deductible to the corporation |
| Contribution room | A fixed percentage of earned income, up to an annual limit | Set by an actuary; rises with age and often exceeds RRSP room after about 40 |
| Past years | Unused room carries forward | Service back to 1991 may be fundable, with RRSP assets or room used first |
| Poor investment returns | Your savings are simply lower | The corporation may make extra deductible contributions to cover a shortfall |
| Costs | Low or none | Set-up, actuarial and administration fees, generally paid by the corporation |
| Access to the money | Withdraw any time (taxable) | Locked in to provide a pension; withdrawals follow plan rules |
| Required withdrawals | Convert to a RRIF by the end of the year you turn 71 | Minimum withdrawals from the year you turn 72 |
Who It Can Fit
Owners who tend to benefit most
- Age 40 or olderBelow that, an RRSP often offers similar room with fewer costs
- Steady T4 salary from the corporationOften around $100,000 or more a year
- A profitable, stable corporationThat can fund contributions consistently for years
- RRSP already maximizedAnd looking for more structured retirement saving
- Values predictabilityA defined pension rather than an account balance
What to Weigh First
The trade-offs
You need a salary
Pension credits come from T4 income, which means payroll, CPP contributions and a salary-and-dividend mix your accountant should review.
Funding obligations
If investments fall short of the plan's assumptions, the corporation may have to contribute more, even in a tight year.
Costs and paperwork
Set-up, actuarial valuations, annual filings and administration add cost and complexity compared with an RRSP.
Less flexibility
Pension money is locked in. Selling or winding up the business means planning what happens to the plan.
How We Work With Your Accountant
Your accountant leads the tax side
We coordinate the actuary, the plan set-up and the paperwork. Nothing is recommended until your accountant has reviewed the numbers.
We model it
An actuarial illustration of contributions, past service and the RRSP comparison for your age and salary.
Your accountant reviews
They confirm the salary strategy, the tax treatment and whether the corporation can carry the commitment.
We implement
We coordinate registration, the actuary, the custodian and the investments, and keep everyone updated.
Common Questions
Questions owners ask about IPPs
Yes. Pension benefits are based on T4 employment income from the corporation. Dividends don't count. Your accountant should review your salary and dividend mix before an IPP is set up.
The corporation may need to make additional contributions to cover the shortfall, which are generally deductible. If the plan earns more than assumed, future contributions may be reduced instead.
Often, yes, if they work in the business and earn a T4 salary from the corporation. The actuary and your accountant will confirm whether it makes sense.
The plan can be wound up, with the value used to buy an annuity or transferred to a locked-in account within the applicable limits. Amounts above those limits may be taxable. This is worth planning well before a sale.
There are set-up costs plus ongoing actuarial, administration and investment fees. We quote them up front. Fees paid by the corporation are generally deductible to it.
Related Guides
Strategies that often work together
Retirement Compensation Arrangement (RCA)
Supplemental retirement funding for higher-income owners, above registered plan limits.
Read the guideCorporate-Owned Life Insurance
Permanent coverage owned by the corporation, with tax-sheltered growth and CDA planning.
Read the guideFor Accountants
How we work alongside you on your owner-managed clients.
Read the guideThis information is general in nature and is not tax, legal, accounting, insurance or investment advice. It is based on current Canadian tax legislation, which can change. Any strategy should be designed and reviewed with your accountant and legal advisors based on your circumstances. Pension rules and limits change each year; figures are confirmed by an actuary before any plan is set up.
Individual Pension Plans in Burlington, Oakville, Mississauga and Hamilton
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