Our Views

IPP changes offer new retirement saving opportunities

If you’re a business owner or incorporated professional in Ontario and haven’t looked at the Individual Pension Plan (IPP) as a tool to achieve your retirement goals of late, now may be the time to take another look.

Recent changes to Ontario’s Pension Benefits Act (PBA) have reduced administrative costs and complexity. This has made the IPP an even more attractive retirement savings option for higher income-earning business owners and incorporated professionals who have surplus income.

Think of the IPP as a registered, defined benefit pension plan designed for one individual that offers tax-planning advantages and maximizes allowable pension contributions under the federal Income Tax Act.

“From a wealth planning perspective, the Ontario government has made the IPP a super-powerful RRSP that allows you to double or triple savings over time,” explains Newport Private Wealth Managing Director and Portfolio Manager, Michael Vanderburgh.

“I’ve always said that the IPP is something that any business owner or professionally-incorporated individual over 40 years old should be looking at—and more so now with these changes.”

Greater flexibility

So, what’s changed?

Bill 213, the Better for People, Smarter for Business Act, 2020, made it possible to remove an IPP from under the jurisdiction of the PBA. In effect, Ontarians no longer have to register their plans under the legislation; plan holders who are not connected members or shareholders of a corporation will still fall under the PBA’s jurisdiction.

The amendments remove layers of red tape and reduce the accounting burden because plan holders no longer need to provide IPP financial statements or plan amendment filings.

Also, the changes eliminate “locking-in” rules that previously prevented plan holders from accessing their IPP funds before retirement, with only a handful of exceptions. And if the IPP needs to be wound up, sponsors are no longer required to transfer their savings to a locked-in retirement account, meaning they have full access to those funds.

Importantly, there is no obligation to make annual contributions to the IPP—ideal for business owners whose income can sometimes fluctuate and who require financial flexibility.

Lower fees

Previously, IPPs came with annual fees, even before factoring in actuarial or accounting costs.

Annual filing and pension assessment fees, for example, could quickly run to as much as $1,100—not a hefty sum, but when shelled out each year can quickly add up. Better for that money to go into your retirement savings.

“For existing IPP clients, it’s a nice win,” Vanderburgh says.

Improved wealth and retirement planning

“The real advantage of the IPP is that it allows you to save more for retirement and make better planning decisions,” he adds.

With the maximum pensionable salary for 2021 set at $162,278, individuals earning more than that amount are eligible to contribute the maximum to their IPP plan. Even if a person was earning less, there can still be significant long-term tax and saving advantages when compared to an RRSP.

IPPs also enhance a plan holder’s ability to make pre-retirement intergenerational wealth transfers to a spouse or child employed in the family business. It’s at that point that asset transfers can offer lucrative tax-planning advantages.

“Major legislative changes like this don’t happen often,” Vanderburgh says, “and for higher-earning self-employed Ontarians with surplus income, it presents a great opportunity to save more and set the stage for a very comfortable retirement.”

Not sure if an IPP makes sense for you? A Newport Portfolio Manager is available to answer your IPP questions and develop the right wealth-planning strategy for you and your family. Get in touch to learn more.

**Please note, this overview is intended as a guide and is subject to change. Contact a qualified financial professional directly for more information on IPP and retirement savings options before making investment decisions.