What is an Individual Pension Plan

An Individual Pension Plan or IPP is a Canadian retirement savings vehicle.  An IPP is a one person maximum Defined Benefit Pension Plan which allows the plan member to accrue retirement income on a tax deferred basis. 

Some of these rules and regulations are:

• The plan sponsor is an incorporated, active company.

• The plan member is an employee of the corporation who earns T4 or T4PS employment income from the corporation.

• The pension plan document indicates a formula defining the amount of benefit to be earned by the plan member.

• Plan Investments must follow strict guidelines.

• Plan sponsor contributions to an IPP, as certified by an actuary, are deductible from corporate income.

• Benefits paid out of the IPP are taxed upon receipt.

• The IPP member is a Connected Person or a Highly-paid Employee (who is a non-Connected Person). The ITR defines these members as Specified Individuals.

• The plan sponsor is the corporation employing the member and paying the member's T4 income. IPP contributions are essentially a portion of the member’s compensation transferred via the corporation to the IPP funding vehicle. IPP contributions are not reported as taxable income to the member. Only a Pension Adjustment is reported in box 52 on the member's T4 slip and the pension adjustment is determined by the Plan's Actuary or Plan Administrator based on a formula prescribed in the Income Tax Act. Note the pension adjustment is not equal to the amount contributed to the IPP.

• DB Plan contributions must be calculated by an Actuary based on the Pension benefit formula, the member’s age and T4 earnings history, and a set of actuarial assumptions.

• Because the IPP only provides benefits to Specified Individuals, the IPP is termed a Designated Plan. While a Designated Plan, the IPP is subject to maximum funding restrictions.

• Maximum funding restrictions require the actuary to use ITR-mandated actuarial assumptions.

• When the IPP is no longer a Designated Plan, the actuary may use his discretion to determine appropriate actuarial assumptions.