July 1999 volume 3, issue 2 

Successful business owners know first-hand that the future doesn’t take care of itself. In fact, a company’s ability to plan for the future can either make a business prosper or drive it into bankruptcy.

When it comes to saving for retirement, the same holds true. Profitable retirement planning takes careful thought and consideration, allowing individuals to make the most of their retirement dollars. For business owners and entrepreneurs with a healthy financial portfolio, an Independent Pension Plan (IPP) is an option well worth exploring.

what is an IPP?
An Independent Pension Plan (IPP) is a retirement savings fund that benefits one individual. An attractive alternative to regular retirement planning, IPPs allow participants to maximize their tax relief while maximizing their retirement pension contributions.

who qualifies for an IPP?
The IPP approach to retirement savings is designed for entrepreneurs and business executives over the age of 50 who, in the past, have contributed the maximum amount to their personal RRSP or pension plan. The IPP also benefits those who have the financial flexibility to accommodate a more aggressive approach to tax deferral.

To qualify for an IPP, an individual must be receiving a T4 income. The plan participant must also be an employee of an incorporated company that is taxable under the Income Tax Act. Finally, the individual should be at least 50 years of age, and earn a minimum annual salary of $86,111 (amount may be slightly lower for older individuals).

why choose an IPP?
An IPP offers individual investors significant pay-offs that might not otherwise be possible under a standard retirement savings plan. Here are just a few of the advantages IPPs offer plan holders:

• Higher Contributions Yield Higher Income
  Under current RRSP rules, individuals can contribute a maximum of $13,500 to their RRSP each year. Unlike the RRSP, however, IPP holders calculate the level of annual income they want to receive during their retirement up to a maximum, then make the contributions necessary to achieve that income level. This may mean contributions of up to $20,000 per year or more in order to fund the retirement plan. Compare this to your maximum RRSP contribution of $13,500. Even though you will lose your RRSP contribution room, the IPP deduction will offer a greater benefit.
  
  
• Money-Saving Tax Deductions
  Under an IPP, all contributions and expenses are considered tax write-offs.
  
  
• Safeguard against Creditors
  Creditors cannot seize assets held in an IPP, provided the IPP was created in good faith and not simply as a means of escaping a pending bankruptcy.
  
  
• Lifetime Income Guarantee
  With an IPP, plan holders have a good idea of how much their retirement income will be. Thanks to calculations of the current annual costs of the participant’s future retirement income, participants have a fairly accurate view of their future financial picture. In the event of a plan holder’s death, an eligible spouse receives 66.66% of the pension. At the time of a participant’s retirement, spousal benefits may be upgraded to 100%.
  
  
• Reaping the Rewards of Past Service Funding
  High earners and executives will find the IPP funding formula offers more benefits than a standard RRSP. Plan holders can even make contributions on funds earned prior to setting up the IPP. Only the IPP approach to retirement planning provides this generous view of past service funding.

While IPP set-up fees have been high in the past, as the plans have become more common, prices have fallen. The key to setting up a successful Independent Pension Plan is ensuring the plan meets your retirement objectives, and that you fit the plan criteria.

Your Wilkinson & Company LLP partner can assist you in ensuring that an IPP is right for you, and can work with your experienced insurance broker or investment adviser in setting up the plan.