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Understanding Individual Pension Plans (IPPs)

June 14, 2024

As Canadian entrepreneurs and high-net-worth individuals seek to optimize their retirement savings, understanding the various retirement planning tools available is crucial.

One such tool that has gained prominence is the Individual Pension Plan (IPP). We'll delve into what IPPs are, how they work, and why they can be an excellent supplement or alternative to the Registered Retirement Savings Plan (RRSP).

If you'd like to learn more about the inner workings of the IPP and how it works, be sure to watch this video.

What is an Individual Pension Plan (IPP)?

An Individual Pension Plan (IPP) is a defined benefit pension plan tailored for one or two people , typically an owner-operator of a corporation and, if applicable, their employed spouse. Unlike RRSPs, which are defined contribution plans where the retirement benefit depends on the amount contributed and the investment performance, IPPs promise a predetermined benefit upon retirement.

How Does an IPP Work?

IPPs are designed to provide a stable and predictable income stream during retirement.

Here’s a breakdown of how they function:

Plan Setup

An IPP is established by a corporation for the benefit of an individual employee, usually the business owner. The employer makes tax-deductible contributions to the plan, which are designed to accumulate a specific retirement benefit.


The contributions are calculated based on factors such as the employee's age, income, and years of service. Generally, older employees can contribute more to an IPP compared to an RRSP because the contribution room increases with age.


The funds in an IPP are invested, and the returns help to build the pension benefit. The investment strategy should align with the goal of providing a secure and steady income in retirement.


Upon retirement, the plan provides a defined benefit based on a formula that considers the employee’s salary and years of service. This benefit is predictable and not dependent on market performance, offering a sense of financial security.

Advantages of IPPs Over RRSPs

Higher Contribution Limits: IPPs generally allow for higher contributions than RRSPs, especially for older individuals. This makes them particularly attractive for those who need to catch up on retirement savings.

Predictable Retirement Income: Because IPPs are defined benefit plans, they offer a fixed[TM2] income in retirement, which is not the case with RRSPs.

Tax Benefits: Contributions made by the corporation are tax-deductible, reducing the corporate taxable income. Additionally, the investment growth within the IPP is tax-deferred.

Past Service Contributions: IPPs allow for past service contributions, which can significantly increase the pension benefit. This is particularly beneficial for long-time business owners looking to maximize their retirement savings.

Supplementing RRSPs with IPPs

While RRSPs offer flexibility and the potential for tax-deferred growth, they come with contribution limits that might not be sufficient for high-net-worth individuals. Combining an RRSP with an IPP can provide a more robust retirement plan.

Here’s how an RRSP and IPP can complement each other:


By using both RRSPs and IPPs, individuals can diversify their retirement savings, reducing reliance on a single source of retirement income.

Maximizing Contributions

Those who have maximized their RRSP contributions can use IPPs to increase their retirement savings further.

Tax Planning

The combination of RRSPs and IPPs allows for strategic tax planning, optimizing both personal and corporate tax situations.

Important Note: Once an individual enrols in an IPP and is benefitting from higher contribution limits compared to an RRSP, they will only accrue additional RRSP contribution room at a rate of $600 per year.

To Wrap Up

For Canadian entrepreneurs and high-net-worth individuals, Individual Pension Plans offer a compelling alternative or supplement to RRSPs. With higher contribution limits, predictable income, and significant tax benefits, IPPs can play a critical role in a comprehensive retirement strategy. To explore how an IPP can fit into your retirement planning, consider consulting with a financial advisor who can provide personalized guidance.

For more detailed advice tailored to your specific circumstances talk to your Integrated Advisory Network Member or with a WealthCo Advisor, who can help you achieve your retirement goals.


Disclaimer: The information in this newsletter is for informational and educational purposes only and is not meant to be construed as financial advise. Please consult with a qualified financial advisor before making any financial decisions.

WealthCo is a member of The Integrated Advisory Network. the Network consists of progressive CPA firms, along with best-in-class professional advisors, service, and product specialists, who work together to deliver an elevated and holistic client experience. One that optimizes both their personal and professional lives with an integrated financial strategy designed to help clients reach their goals.