In a recent episode of The Wealthy Life with Sybil Verch, pension expert Spenser McCaig, from Westcoast Actuaries Inc., explains how business owners can set up their own Individual Pension Plan (IPP), and why that may be a better option than RRSPs for some people.
If you're a business owner or an incorporated professional—like a doctor, dentist, or consultant—an Individual Pension Plan (IPP) could be a powerful tool for building your retirement savings. While it shares some similarities with a Registered Retirement Savings Plan (RRSP), an IPP offers unique advantages that may better suit your financial goals.
Let’s explore what an IPP is, how it works, and whether it’s the right fit for your retirement strategy.
What Is an Individual Pension Plan?
An IPP is a registered, employer-sponsored defined benefit pension plan designed for a single participant—typically a business owner or key employee of a corporation. Unlike an RRSP, which is a defined contribution plan, an IPP is a defined benefit plan that offers a specific annual retirement income based on factors like age, earnings, and years of service.
Who Can Set Up an IPP?
Only incorporated businesses can establish an IPP, and it must be set up for the benefit of a key individual—usually the business owner or a vital employee. Family members such as spouses or children may also be included if they are actively employed by the corporation.
Why Business Owners Choose IPPs
For incorporated professionals and entrepreneurs, IPPs offer several compelling benefits:
However, IPP contributions reduce your RRSP contribution room through a “pension adjustment,” meaning you can’t contribute the full 18% of income to your RRSP in the same year.
IPP vs. RRSP: Key Differences
How IPPs Save You Taxes
An IPP allows your corporation to reduce its taxable income by deducting contributions. Meanwhile, the plan member benefits from tax-deferred investment growth, just like with an RRSP. Taxes are only paid when funds are withdrawn in retirement-often at a lower tax rate.
Contribution Limits: IPP vs. RRSP
RRSP contributions are capped at 18% of the previous year’s income, up to a government-set maximum (e.g., $32,490 in 2025).
In contrast, IPP contributions are calculated by an actuary and are typically higher for individuals over age 40. This makes IPPs especially attractive for older professionals looking to accelerate their retirement savings.
Pros and Cons of an IPP
Advantages:
Disadvantages:
Is an IPP Right for You?
An IPP is best suited for high-income earners who are incorporated, have a conservative investment risk profile and looking for a more structured, tax-efficient retirement plan. If that sounds like you, speak with your financial advisor to determine whether an IPP aligns with your long-term goals.
How to get started with an IPP
About The Wealthy Life
The Wealthy Life empowers Canadians with the knowledge and tools to make smart financial decisions. Join The Wealthy Life for exclusive insights, resources, and guidance to help you live your version of a wealthy life.
Disclaimer: The above article is for information purposes only. Always consult a financial professional before taking action.
