What Is an IPP (Individual Pension Plan) in Canada?

If you've spent years building a business or working as an incorporated professional, you may have heard the term "Individual Pension Plan" come up in conversations about retirement. An IPP is a registered pension plan — but instead of belonging to a large employer, it's set up specifically for one person: you. For the right candidate, it can be one of the most powerful retirement savings tools available in Canada. Here's what it is, how it works, and who it's actually built for.

How an Individual Pension Plan Works

An IPP is a defined benefit pension plan registered with the Canada Revenue Agency (CRA). Like a traditional corporate pension, it promises a specific monthly income at retirement based on a formula — typically tied to your years of service and average salary from your corporation.

Your corporation makes contributions to the IPP on your behalf, and those contributions are tax-deductible for the business. The money grows inside the plan on a tax-sheltered basis. When you retire, the plan converts into a stream of pension income — similar to what someone with a government or teachers' pension would receive.

Because the required contributions are calculated actuarially (based on your age, salary, and years of service), an IPP can allow significantly more money to flow into a tax-sheltered structure than an RRSP alone — especially as you get older.

Who Is an IPP Designed For?

Not everyone qualifies. An IPP is generally suited to incorporated business owners, incorporated professionals (doctors, dentists, lawyers, consultants), and executives who receive T4 employment income from their own corporation.

The plan tends to work best for individuals who are:

• Incorporated — contributions are made by the corporation, so you need one
• Over 40 — contribution room increases significantly with age, making the tax advantage more compelling in your 40s, 50s, and 60s
• Earning a consistent T4 salary — typically $100,000 or more per year from the company
• Looking for a pension-style retirement structure — rather than the flexibility of a self-directed RRSP

If you're younger or just starting out, the RRSP may offer more flexibility and simplicity. But for the right profile, an IPP can meaningfully accelerate tax-sheltered retirement savings over a career.

IPP Contributions vs. RRSP Contributions

Most Canadians are familiar with the RRSP contribution limit: 18% of prior year earned income, up to a CRA-set maximum. For 2026, that ceiling is $32,490. An IPP can potentially allow contributions well above this limit.

Here's why: IPP contribution limits are actuarially determined. As the plan member gets older, the formula requires higher contributions to fund the promised future pension — and those higher contributions are fully deductible to the corporation. By your mid-50s or early 60s, the annual IPP contribution room can exceed the RRSP limit by a meaningful amount.

There's also a "past service" provision. When an IPP is first established, it may be possible to credit past years of T4 employment with your corporation, creating an additional one-time contribution opportunity. This isn't available in every situation, but it can be a significant tax planning moment for someone who has been incorporated for many years.

One important note: an IPP and an RRSP don't run fully in parallel forever. The pension adjustment from your IPP will reduce your future RRSP contribution room. A qualified financial planner can model both scenarios to show you which structure works harder for your specific situation.

Key Considerations Before Setting Up an IPP

An IPP comes with real advantages, but it's not a set-it-and-forget-it tool. A few things worth thinking through carefully:

• Setup and administration costs: An IPP requires actuarial valuations (typically every three years), annual filings, and professional administration. These costs are legitimate corporate expenses, but they do add up — and they matter more if your contribution room is modest.
• Less flexibility than an RRSP: With an RRSP, you can withdraw funds at any time (subject to tax). An IPP is a locked-in pension — the money is meant to fund retirement income, not act as a flexible savings account.
• Termination rules: If your corporation winds down or the plan needs to be terminated, there are specific CRA rules about how the funds are handled and where they can be transferred.
• Consistency requirement: Because the plan is funded based on your T4 salary, it works best when your corporate income is stable and consistent over time.

For business owners and incorporated professionals in the right situation, these trade-offs are well worth understanding — but the decision should never be made in isolation or without looking at your full financial picture.

Is an IPP Right for You?

An Individual Pension Plan can be one of the most effective retirement planning tools available to incorporated Canadians — but it isn't the right fit for everyone. The math depends heavily on your age, corporate income structure, years of incorporation, and long-term plans for your business.

Marc Pineault, a financial planner based in London, Ontario, works with incorporated professionals and business owners to evaluate whether an IPP makes sense alongside their broader retirement strategy. If you're wondering whether your situation is a good fit — or whether you'd be better served staying with your current RRSP approach — the best first step is a straightforward conversation.

Book a consultation with Marc to explore whether an IPP belongs in your retirement plan.

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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.