Individual Pension Plans (IPP) in Ontario: What Business Owners Should Know

Most incorporated business owners default to the RRSP as their primary personal retirement savings vehicle. It's familiar, straightforward, and accessible. But for higher-income owners — particularly those over age 40 — there's another option that can shelter considerably more on a tax-deferred basis: the Individual Pension Plan, or IPP.

An IPP is a defined benefit pension plan registered under the Income Tax Act and set up by your corporation for your benefit as the owner-employee. It's not a household term, but for the right business owner, it can be one of the most effective retirement planning structures available in Canada.

How an IPP Works

Unlike an RRSP — where contribution room is capped at 18% of prior year earned income up to a fixed dollar limit — an IPP is structured around a defined benefit formula that promises a specific retirement income based on your years of service and pensionable earnings.

The corporation makes contributions to the IPP on your behalf. Those contributions are tax-deductible to the corporation and grow inside the plan on a tax-deferred basis. When you retire, the plan pays you a defined monthly pension.

Because defined benefit plans promise a specific outcome, actuarial calculations determine how much must be contributed to fund that promise. For older, higher-earning business owners, those required contributions can significantly exceed what's allowed under an RRSP — which is part of the appeal.

IPP vs. RRSP: The Key Differences

The RRSP is individually owned and has a fixed contribution room based on prior year income. The IPP is corporately funded, based on actuarial math, and can accommodate much larger contributions — especially as you age.

For a 50-year-old incorporated business owner earning $200,000+ per year, the annual IPP contribution room may be 50 to 100% higher than what an RRSP would allow. The gap widens further when past-service contributions are made. If you've been incorporated for years and want to "back-credit" those years into the IPP, the corporation may be able to make a large lump-sum past-service contribution — a significant one-time tax deduction.

Additionally, contributions to an IPP are a corporate expense, which means the business bears the cost rather than the owner personally. This is different from an RRSP, where the individual uses after-salary dollars to contribute.

There are trade-offs. IPPs carry administrative costs: actuarial fees, CRA registration, annual reporting, and triennial actuarial reviews. These make IPPs economically unattractive for lower contribution levels or younger owners. They also involve some inflexibility — the plan is designed to deliver a defined pension, not a lump-sum withdrawal pool like an RRSP.

Who Is an IPP Right For?

IPPs are typically best suited to:

• Incorporated business owners over age 40
• Those with pensionable salaries above approximately $100,000 per year
• Owners who have been incorporated for several years and can benefit from past-service contributions
• Those who are committed to the long-term structure and can absorb the ongoing administrative costs

They're not ideal for younger owners, those with lower or inconsistent income, or those who want maximum flexibility in how they access and invest retirement assets.

It's also important to note that setting up an IPP doesn't automatically mean abandoning the RRSP. The two can sometimes coexist in a coordinated retirement savings strategy, though an IPP will typically reduce or eliminate RRSP room going forward.

Getting the Right Advice Before You Decide

An IPP is not a product you set up and forget. It requires an actuary, an administrator, CRA registration, and a financial planner who understands how it fits within your overall corporate and personal financial picture. The question isn't just "can I set up an IPP?" — it's "does an IPP make sense given my age, income, corporate structure, and retirement timeline?"

Marc Pineault at Pineault Wealth Management helps business owners in London, Ontario think through exactly these kinds of questions. Whether an IPP is the right fit or whether another structure better serves your goals, the goal is to make sure you're building retirement wealth as efficiently as possible.

Book a conversation with Marc about IPPs and retirement planning

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This article is for educational purposes only and does not constitute personalized financial advice. Please consult a qualified financial planner before making any financial decisions.