Clients of dealing representatives, who operate professional
services corporations, such as law firms and doctor’s offices, could
be eligible to invest in IPPs.
What are the advantages of offering an IPP to your clients?
For an eligible client, the advantages of an IPP can be
extensive, especially when the individual is the business owner, as
all eligible employer contributions are made on a tax-deductible
basis for the company’s tax purposes, and are not taxable to
employees until received as pension income. The employer can
also make further tax-deductible contributions if the IPP has a
deficit at a subsequent actuarial valuation.
Additionally, contribution limits are higher than a regular
RRSP for employees over the age of 40 and the employer can
both make contributions for an employee’s eligible past service
and make additional contributions upon the employee’s retirement
and commencement of pension.
“If you’re earning $150,000 per year at age 60,
your contribution advantage in an IPP could be
over $15,000 per year compared to an RRSP,” says
Stephen Cheng from Westcoast Actuaries. “When the
IPP is set up, if a 60-year-old individual has 10 years
of previous employment history with the company,
the company has the opportunity to contribute up to
$150,000 to the IPP.”
Pension income from an IPP can be split up to 50% with a
spouse for income tax purposes. Assets within an IPP are protected
by a trust, as well as pension legislation, and are creditor-proof.
Are there any disadvantages to an IPP?
“An IPP is a complex financial instrument and requires a lot
of pieces to get it off the ground,” says Michael Byrne of Self-
Employed Personalized Pension Plans (SEPPP). “You need an
actuary to determine contribution limits, a custodian, a trustee
and tax planners, and without someone to coordinate all of these
players effectively, it can be a difficult process.”
Potential downsides to an IPP are that the funds are locked-in
and only accessible in retirement, and that there can be higher
start-up and administrative costs. However, for qualified individuals,
there is the possibility to greatly increase the amount of money
saved for retirement in an IPP vs. an RRSP, and this may well justify
the higher costs of an IPP. Furthermore, expenses related to the
administration of an IPP are all tax-deductible to the corporation.
What are the opportunities in the IPP space?
The IPP market has considerable growth potential – it is an
underutilized space, especially for the exempt market, due in part
to the complexity of putting together a compliant offering. Michael
Byrne explains: “Historically, there have been a lot of roadblocks
to an IPP for the exempt market and, consequently, out of roughly
two million opportunities across Canada there are only 8,000 or so
individuals taking advantage of the IPP. SEPPP, Computershare
and our actuary partners have built an infrastructure that will
satisfy all of the CRA requirements for opening an IPP.”
The difficulty in the past for individuals trying to take advantage
of IPPs has always been the complicated process involved with
setting up and administering these plans. But now, Computershare
has partnered with SEPPP and Westcoast Actuaries to design a
simplified process that enables dealing representatives to easily set
up an IPP on behalf of eligible clients. Dealing representatives and
their clients can tap in to the exempt market through their IPP, and
have the advantage of working with one provider, that manages the
complexities of setting up and administering their IPP.
Given the recent changes to exempt market regulations, a
collective of IPPs could combine to wield the purchasing power of
larger institutional pensions, providing individual pension holders
with a true pension-style portfolio, containing a blend of exempt
market and public equity assets.
Computershare is proud to be a part of this unique structure
and emerging space in Canada and can help you and your client
open IPP accounts and file the necessary documents.
For more information contact:
1. Westcoast Actuaries, “Individual Pension Plans,” http://www.
2. Westcoast Actuaries, “Individual Pension Plan Frequently
Asked Questions,” http://www.westcoast-actuaries.com/
3. Westcoast Actuaries, “IPP Advantages & Disadvantages vs.
4. Discovery Finance, “IPP – Supersize Your Retirement