Personal Pension Plans

Business owners still have the option to use Individual Pension Plans (IPPs) to create an income stream for after they sell their businesses or pass them to the next generation.

But the 2011 Federal Budget included changes to the distribution requirements of the plans; and, more importantly, changes impact past service contributions, which now must be made by first transferring unused RRSP room or actual RRSP assets to the IPP.

The change will limit new funds the corporation can deposit into the IPP; resulting in less corporate tax-deductible contributions. Some see this signaling the demise of IPPs, but these predictions are premature at best.

Realistically, the new past service requirement will only affect IPP candidates closer to retirement who have sizable RRSP balances. Younger IPP candidates with low RRSP balances will not be seriously impacted since they do not have many past years of service.

But even for older IPP candidates who have higher balances, there are many other benefits to consider. For example, the IPP is a secure, creditor-protected defined-benefit pension plan. Given that most DB plans are slowly being replaced by CAP or DC plans, it is a great opportunity for a business owner to have the security of a DB plan like their counterparts in large public or crown corporations.