IPP inc. Actuaries and Retirement Plan Specialists The Individual Pension Plan Presentation on behalf of: The Banff School
IPP inc. Actuaries and Retirement Plan Specialists The Individual Pension Plan Presentation on behalf of: The Banff School.
Dec 16, 2015
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IPP inc.Actuaries and Retirement Plan Specialists
The Individual Pension Plan
Presentation on behalf of:
The Banff School
IPP inc.
Presentation Overview
Demonstrate the Individual Pension Plan advantage Outline market potential Identify who can benefit from an IPP Provide IPP examples Review the administration process
IPP inc.
What is an IPP?
The IPP:– a defined benefit pension plan for one individual
• can include a spouse The IPP Objective:
– to fund the maximum pension permitted under the Income Tax Act
Marketing Approach:– an RRSP on steroids
IPP inc.
The IPP Advantage
Employer sponsored registered pension plan Member owned assets Significant tax deductions Creditor proof Tax deductible employer expenses Asset top-up Tax-effective corporate compensation strategy
IPP inc.
Market Potential
Currently: – estimated 7,000 IPPs in Canada– 4,000 in last three years
Potential:– over 300,000 IPPs– over $200 billion in assets
IPP inc.
Why the Movement to IPPs?
Explosion of self employment in the 1990’s Mass retirement exodus beginning 2010 Require tax-effective corporate asset withdrawal strategy Convinced RRSP retirement income will be inadequate
IPP inc.
Industry Comments
“Four out of five baby boomers wish they had started saving for their retirement sooner, and 70% now fear they may not have put away enough ...”Source: Ipsos Reid
“Only 28% of boomers are very confident that they will be financially secure in their old age”Source: State of the Baby Boomer – BMO Financial Group
“A third of boomers are concerned that their standard of living will drop in retirement”Source: State of the Baby Boomer – BMO Financial Group
IPP inc.
Model IPP Member
Individual– owner/ manager
• incorporated• professional corporation
– executive Age
– 40 to 71 Earnings
– consistent high T4 earnings Service
– with current company from 1991 Requirement
– more tax-sheltering than is available under an RRSP
IPP inc.
Past Service
Past Service
– can recognize service before the plan effective date
– cannot have both a maximum pension and a maximum RRSP
Qualifying Transfer– required transfer of RRSP funds– becomes an IPP asset– subject to pension rules
IPP inc.
IPP Example 1Member age 50 with maximum earnings and service to 1991
For an IPP effective January 1, 2007
2007 IPP Contribution
Total Past Service Liability $ 404,500
Qualifying Transfer 273,000
Past Service Liability $ 131,500
IPP inc.
Current Service
Current Service Liability– cost for the current plan year – employer cost/ deduction
IPP inc.
IPP Example 1Member age 50 with maximum earnings and service to 1991
For an IPP effective January 1, 2007
2007 IPP Contribution
Contribution for 2007 $ 25,300
Past Service Liability 131,500
Sub-total $ 156,800
Qualifying Transfer 273,000
Total IPP Asset $ 429,800
IPP inc.
Past Service
Past Service Liability– maximum immediate funding amount
$ 131,500– can be amortized
$ 30,200– employer cost/ deduction
IPP inc.
IPP Example 1Member age 50 with maximum earnings and service to 1991
For an IPP effective January 1, 2007
Year Maximum Payment
Minimum Payment
RRSP Maximum
2007 $ 156,800 $ 55,500 $ 19,000
2008 $ 26,200 $ 56,400 $ 20,000
2009 $ 28,200 $ 58,400 $ 21,000
2010 $ 30,300 $ 60,500 $ 22,000
IPP inc.
IPP Advantage Member age 50 with maximum earnings and service to 1991
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
RRSP IPP
Total Accumulated Fund Value
Initial Deposit
Qualifying Transfer
RRSP
IPP inc.
IPP Example 2Member age 50 with maximum earnings and service to 1999
For an IPP effective January 1, 2007
2007 IPP Contribution
Contribution for 2007 $ 25,300
Past Service Liability 54,900
Qualifying Transfer 147,200
Total IPP Asset $ 227,400
Maximum Payment $ 80,200
Minimum Payment $ 37,900
IPP inc.
IPP Example 3Member age 50 with $50,000 earnings and service to 1991
For an IPP effective January 1, 2007
2007 IPP Contribution
Contribution for 2007 $ 11,400
Past Service Liability 93,400
Qualifying Transfer 124,000
Total IPP Asset $ 228,800
Maximum Payment $ 104,800
Minimum Payment $ 32,900
IPP inc.
IPP Example 42007 IPP contribution with maximum earnings and service to 1991
Age
2007
IPP
Contribution
RRSP Contribution
IPP
Advantage
40 $83,200 $19,000 $64,200
45 $118,200 $19,000 $99,200
50 $156,800 $19,000 $137,800
55 $199,100 $19,000 $180,100
60 $245,500 $19,000 $226,500
62 $265,400 $19,000 $246,400
For an IPP effective January 1, 2007
IPP inc.
IPP Example 5 Annual IPP contribution
Age
2007
2008
Contribution
2009 Contribution
2010 Contribution
40 $21,700 $23,300 $25,000
45 $23,800 $25,600 $27,500
50 $26,200 $28,200 $30,300
55 $28,800 $31,000 $33,300
60 $31,600 $34,000 $36,600
62
RRSP
$32,800
$20,000
$35,300
$21,000
$37,900
$22,000
IPP inc.
Funding Considerations
Recognizing Past Service– at plan start-up– as funds become available
Maximum Contribution– lump sum at start-up– current service
Minimum Contribution– amortized past service– current service
Balancing Plan Assets and Liabilities– plan surplus– plan deficit
IPP inc.
Early Retirement
Normal Retirement– age 65
Early Retirement– within 10 years of normal retirement
Early Retirement Costs– reduced retirement age– lost investment earnings– CPP bridge benefits– enhanced indexing
Funding Options– immediate payment/ amortized costs– employer cost/ deduction
IPP inc.
IPP AdvantageMember Age 60 at Retirement
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
RRSP IPP
Total Accumulated Fund Value
Early Retirement
IPP
RRSP
IPP inc.
Retirement Options
Purchase an Annuity– from an insurance company
Transfer Assets to LIF– annual withdrawals from the LIF– minimums and maximums apply
Make Payments From The IPP– IPP continues– payments made from fund– corporate sponsor must remain– actuarial valuation required
Other– any combination of the options
IPP inc.
Death Benefits
Member with Spouse – pre-retirement– transfer to RRSP/ RRIF/ LIRA/ LIF/ annuity/ RPP– excess paid in cash
Member with Spouse – post retirement– annuity; as per contract– LIF; transfer to Spouse’s RRSP or RIF or cash payment, less tax
Beneficiary– total asset value, less tax
IPP inc.
Asset Management
Fiduciary Options– corporate trustee– three individual trustees – insurance company
Investment Options– pooled/ mutual funds– individual investments
IPP inc.
Recent Legislative Developments
50% Unlocking (November 1, 2006)– LIF or LRIF in payment – before December 31, 2007– IPP/ LIRA – upon conversion to retirement income
LRIF/ LIF (August 10, 2006)– increased maximum annual withdrawals– LIF conversions at age 80 not required
LRIF– to be discontinued December 31, 2007
Mortgage Investments– LIFs and LIRAs can be invested in non-arm’s length mortgages
Registration with Alberta – no longer required
IPP inc.
Recent Legislative Developments
2007 Federal Budget Maturity age for tax assisted programs
– increase to age 71 from age 69 Income splitting
– RPP and RRSP benefits Qualified investments
– to include most investment-grade debt and securities
IPP inc.
IPP Administration
Feasibility report:− includes financial assessment and comprehensive overview
Plan set-up: – includes plan text, trust agreement/ insurance contract, actuarial report
and certification, provincial and federal registration
Annual administration:– includes annual plan administration, provincial and federal regulatory
compliance, member statement
Triennial actuarial valuation:– includes asset review, actuarial report and certification, provincial and
federal filing
IPP inc.
IPP vs. RRSP
IPP RRSP
Sponsor Employer Individual
Contributions Employer
Required
Individual
Optional
Asset adjustment Asset top-up
Contribution holiday
n/a
Contribution timing 120 days after corporate year-end
60 days after calendar year-end
Plan administration Highly regulated Regulated
IPP inc.
IPP vs. RRSP
IPP RRSP
Plan assets Member owned
Creditor proof
Individual owned
Investments Pooled/ mutual funds, individual investments
Pooled/ mutual funds, individual investments
Income splitting On payout On payout
Spousal RRSP option
Early retirement Permitted – with additional funding
Permitted
Payout options Life annuity, LIF, from plan, 50% cash
Life annuity, RRIF, LIF, cash
IPP inc.
Questions?
IPP inc.
Contact Us
IPP Consulting Ltd.Actuaries and Retirement Plan Specialists
504, 1300 – 8th Street SW
Calgary, AB T2R 1B2
Telephone: (403) 228-9024
Fax: (403) 228-9086
e-mail: [email protected]
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