The business is your retirement plan. Let's give it a real pension.
Plenty of employees retire with a pension. Business owners usually retire with an RRSP and hope. If you pay yourself a salary, your company may be able to set up a pension just for you, and fund it more generously than an RRSP allows.
Option 1: An Individual Pension Plan (IPP)
An Individual Pension Plan is a pension your company sets up for you, and sometimes for family members who work in the business.
- The company makes the contributions and deducts them.
- Depending on your age and salary, contributions can be well above what an RRSP allows, especially from your 40s on.
- In some cases, the company can also contribute for past years you worked there.
- Pension money generally has strong protection from creditors.
- At retirement, it can pay you a pension or, depending on the plan, move into other retirement options.
Option 2: A retirement compensation arrangement (RCA)
This one is for higher earners who've outgrown the usual pension limits. It lets the company set money aside for your retirement beyond those limits. Half of each contribution is held by CRA as a refundable tax and comes back as benefits are paid out. It's flexible, but more complex, so it's a specialist conversation.
Get a personalized comparison
Wondering what a pension could look like for you? I'll work with a pension specialist to prepare a side-by-side comparison of an individual pension versus your RRSP, based on your age and salary. It's usually at no cost to you.
Request your comparisonHow we work through it
- 1We run the numbers: an individual pension versus an RRSP, for your age and salary.
- 2I bring in a pension specialist who sets up and runs these plans.
- 3Your accountant confirms it fits how you pay yourself.
- 4We check in yearly. The plan also needs a formal review every few years.
Is this a fit?
Usually a good fit
- You pay yourself a salary, not just dividends
- You're in your 40s or older
- The company has steady income and can contribute regularly
Probably not yet
- You only pay yourself dividends (a pension plan needs salary)
- Cash flow is lumpy and you can't commit to contributions
- You're early in your career. An RRSP and TFSA probably do the job for now.
The honest fine print
- Set-up and yearly costs are higher than an RRSP.
- It's a real pension. If the plan falls short, the company may have to top it up. That means more deductions, but also less flexibility.
- Your RRSP room shrinks once you're in the plan.
- The money is locked in for retirement. It's not a savings account.
Questions to take to your accountant
- 1.Does shifting some dividends to salary make sense to fund this?
- 2.What would the company's deductions look like over the next five years?
- 3.How would this fit with my spouse's retirement plan?
FAQ
Can my spouse be in it too?
If they work in the business and are paid a salary, often yes.
What happens if I sell the business?
There are options for winding up or moving the plan. Like most things here, it's easier if we plan for it early.