- Your business is incorporated.
- You are at least 40 years of age.
- You take a salary from your company every year.
- Your company has predictable and positive cash flow.
- You would like to ensure your retirement is creditor protected.
- You would like a more efficient retirement strategy.
An Effective Retirement Savings Solution for Professionals and Business Owners
For most workers, primarily middle income contributors, an RRSP is an efficient retirement savings vehicle. However, an RRSP may not meet the needs of higher-income individuals, such as incorporated professionals and business owners. With higher incomes, RRSP contributions become limited and cannot generate sufficient savings to allow a more comfortable lifestyle in retirement.
Since 2012, there is another way for you to build a retirement income that lives up to your expectations: the Personal Pension Plan (PPP) developed by INTEGRIS Pension Management Corp. The PPP is a registered pension plan for a single member, designed specifically for incorporated business owners. It offers higher tax deductions and allows for the maximization of retirement savings under current legislation. The PPP is an excellent alternative to the traditional method of simply contributing to an RRSP.
What is a Personal Pension Plan?
The PPP is a Canadian pension plan registered with the Canada Revenue Agency (CRA) and provincial pension authorities, where required. The member’s Corporation establishes and funds the plan, with all contributions and plan expenses tax deductible. It is a combination pension plan offering both a defined contribution and defined benefit options. At the beginning of each year, the PPP provides plan members the flexibility to determine which plan component and contribution method to choose. Unlike traditional retirement savings plan, the PPP is flexible and is easily custom tailored to accommodate each member’s unique financial situation and personal requirements.
The retirement income generated by a PPP is always greater than the income provided by an RRSP because at any age, someone contributing the maximum pensionable salary can always contribute more to a PPP than to an RRSP.
Is this the Independent Pension Plan (IPP)?
Although similar to the Individual Pension Plan (IPP), the PPP offers additional components which provide greater flexibility as your business goes through growth years and/or challenging years.
Benefits of the Personal Pension Plan
Tax deductions – PPP contributions and costs are tax-deductible and paid by the company. Any employees’ contributions offer personal tax deductions.
Creditor protection – Unlike most RRSPs, the PPP is creditor-proof because its assets are exempt from seizure under provincial pension laws.
Flexible contribution options – The PPP’s flexible design allows business owners to switch their participation in the PPP to the DC (defined contribution) account in difficult financial years and back to DB (defined benefit) when the company is doing well. This is significantly more flexible than the Individual Pension Plan (IPP).
Tax-deferred growth – The PPP provides an opportunity for continued tax deferral after retirement if the member elects to take a pension from the PPP.
Past years of service – It is possible to contribute for recognized years of service before the PPP was established. For this to occur, the company must have paid the member T4 income (salary, bonuses, etc.).
Terminal funding at retirement – The Personal Pension Plan assumptions can be modified at retirement to provide enhancements to the pension benefits.
Fiduciary oversight – INTEGRIS Pension Management Corp. acts as the delegated administrator of the PPP and has a fiduciary duty, which ensures that the plan will be managed in accordance with applicable legislation. This provides professional services and compliance oversight that were previously unavailable in the Canadian marketplace for small incorporated professionals and business owners.
Appropriate for all ages – The PPP has a flexible plan design that allows plan members to move between the Defined Contribution (DC) and the Defined Benefit (DB) components of the plan. This flexibility means that the member can benefit from participation in the DC component while he/she is under age 40 and then participate in the DB component until retirement. This combination plan design allows the member to contribute more, accumulating more assets under the PPP an under RRSP rules and regulations.
Assets are owned by the employee – Upon retirement and in case of plan and employment termination, the assets belong to the member and are not taxable as long as they are not withdrawn. Upon retirement and under certain conditions, excess assets can provide additional income to the member. The surplus can also stay in the plan to fund the pension benefits of family members employed by the company.
Fees are paid by the employer – All PPP fees are paid by the employer and are tax-deductible for the employer.
If the company is sold – Transferring cash from the company to the PPP upon sales of the business can assist with other tax exemptions (lifetime capital gains exemption).
Freedom of choice at retirement – The Personal Pension Plan provides the member with three different options upon retirement.
1. Use the funds to purchase a life annuity (including a joint life annuity guaranteed for up to 15 years).
2. Maintain the PPP to pay a monthly pension.
3. Roll the funds (subject to the CRA maximum) into a locked-in retirement instrument (Registered Retirement Income Fund), depending on the applicable legislation.
Personal Pension Plan Corporate sponsors have access to a full range of investment options, including guaranteed investments and investment funds. Guaranteed investments, offered for 1 to 10 year terms, are designed for plan seeking stable returns and capital protection at maturity. The assets invested in guaranteed investments are protected by Assuris (a non-profit organization that protects Canadian policy holders when a life insurance company becomes insolvent) according to the applicable terms and conditions. Pension investments are held and managed by IA Financial Group (Industrial Alliance).
Investment funds offer a wide range of risk levels and return perspectives. In fact, the PPP’s complete line of funds allows plan sponsors to maximize the diversification of their assets, for both asset categories and investment approaches. No minimum amount is required to invest in investment funds. Some funds may be managed by external investment firms based on the plan’s varying needs. No fees are incurred should assets be moved from one fund to another.
The Podium Prosperity Group Service Advantage
Implementation of the PPP is complex and involves significant coordination. Jim Pelot, CPA, CA of Podium Prosperity Group will be your quarterback in this ongoing process. His expertise in implementation and maintenance of your PPP are increasingly known across Canada as the PPP becomes more widely known and utilized as a wealth extraction strategy for business owners. He will coordinate and communicate with INTEGRIS (the plan administrator) and Industrial Alliance (the pension fund management group) for you.
All fees charged for the PPP are tax-deductible. These fees include the following services:
- Establishment of the plan and monitoring of your plan
- Preparation of the plan text and all other documents and forms required to register the PPP
- Registration of the plan with the Canada Revenue Agency and the applicable provincial authority, if required
- Required amendments to the plan in response to changes in applicable legislation
- Initial actuarial valuation and subsequent actuarial valuations (every three years in most cases), to determine the contribution amount to ensure the plan is properly funded
- Valuation required for the purchase of past service
- Annual information returns
- Annual member statement
- Assistance with administration issues
- Calculations of the termination of employment, death and retirement benefits
- Record-keeping of the plan administration data
- Annual calculation of the pension adjustment (PA)
- Monthly report on investment fund returns
- Various investment-related publications: Monthly Update, Quarterly Update, Annual Financial Report on Investment Funds
Is the PPP Always Your Best Solution?
As a business owner, you are always looking for the most profitable, tax efficient, creditor protected solution. While the PPP is powerful, it is not always the only or the best answer. An IPP can be an alternative solution for the right situation. Age can also be a factor. If you are younger than 40, you may choose alternatives until this key divergence age is reached. We are happy to discuss these and other strategies with you.
To discuss your particular situation and the solutions which are optimal for you and your business, please give us a call or send us an email.