What is a Personal Pension Plan

What is a Personal Pension Plan?

A Personal Pension Plan is a defined benefit pension plan for the benefit of one or two individuals. There are significant advantages that Personal Pension Plans have over Registered Retirement Plans (RRSPs).

Are You Eligible for a Personal Pension Plan?

The ideal candidate for a Personal Pension Plan is an individual who:

• Is at least 45 years old
• An employee of a corporation (this could be a business owner/executive/incorporated professional)
• Historically has had employment income of at least $100,000/year
• Has a reliable future employment income stream in excess of $100,000/year
• Has no foreseeable need to access the funds designated for retirement (ex. retirement funds should not be needed for an emergency since funds inside an IPP are locked in)

Advantages of a Personal Pension Plan

• Increased Contributions
  • A company can contribute more to the owner’s retirement fund at a higher level than an individual can. Why? The maximum contribution for an RRSP is the same at every age. A Personal Pension Plans’ contribution room can increase with age.
• Additional Contributions for Past Service
  • Past service contributions may be possible if the owner has been receiving a salary in past service years. This can be useful for individuals that have significant RRSPs and/or high incomes. They can transfer company surplus into retirement savings on a tax-deductible and deferred basis
• Additional Contribution at Retirement
• Offset Any Investment Under Performance
• Creditor Protection
  • Assets held inside a Personal Pension Plan are protected from creditors of both employees and employers under provincial pension benefits standards legislation
• Personal Pension Plan Costs are Deductible to the Business
  • A Personal Pension Plan is a company obligation. All costs, including administrative, actuarial, investment management and accounting are tax deductible to the corporation
• Possible Inter-Generational Transfer of Pension Assets
• Spousal Pension Planning

Disadvantages of a Personal Pension Plan

• Costs
  • A Personal Pension Plan is considerably more costly to establish and administer than an RRSP. They require setup, annual and triennial valuation fees
• Complexity
  • A Personal Pension Plan has annual filing requirements with CRA and fiduciary responsibilities on behalf of the trustees
• Inflexible
  • There is no access to the funds while the business owner is employed and a member of the plan
• Minimum annual contribution requirements
• Administrative Reporting
  • There are several administrative requirements involved in establishing and maintaining a Personal Pension Plan. These include: CRA registration, investment restrictions, annual filings, and triennial actuarial valuations
• Public Disclosure
  • Certain information relating to registered plans is available to the public

Determine If a Personal Pension Plan Makes Sense

A Personal Pension Plan can have significant tax benefits for certain individuals. Talk to us and we can help guide you to ensure you’re making the right choice when it comes to funding your retirement.