Individual Pension Plan

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Individual Pension Plans: Enhancing Retirement and Tax Efficiency

An Individual Pension Plan (IPP) is an employer-sponsored defined benefit pension plan tailored to provide enhanced retirement benefits for business owners, incorporated professionals, and key employees. Unlike standard retirement savings vehicles, an IPP allows higher contribution limits than traditional Registered Retirement Savings Plans (RRSPs), particularly for individuals over 40 with substantial annual income. RRSP room is generally 18% of earned income to an annual cap.

IPP contributions are set to fund a Defined Benefit (DB) Pension (commonly framed as a pension based on earnings and service), and funding needs typically increase with age because there’s less time to accumulate investment growth before retirement. Age 40 matters because an IPP is a defined benefit (DB) pension, and the required annual funding is actuarially determined to “catch up” to the promised pension by retirement.

With fewer years left to fund the same target benefit, the required contribution rate rises with age, so it often overtakes the RRSP maximum around the early-40s for higher T4 incomes. Many incorporated business owners face challenges in accumulating sufficient retirement savings while optimizing corporate tax strategies. Issues such as limited RRSP room, unpredictable investment growth, and the need for structured retirement planning can restrict long-term wealth accumulation.

IPPs address these problems by combining corporate tax-deductible contributions, predictable pension accruals, and flexibility in eligible investments, ensuring a structured pathway to retirement security. SGA Wealth specializes in guiding Canadian business owners and incorporated professionals through IPP establishment and administration. Our expertise ensures tailored plans that maximize contributions, minimize tax exposure, and provide sustainable retirement benefits for both the employer and employee.