Many investment advisors who are familiar with individual pension plans or IPPs, often ask how the INTEGRIS Personal Pension Plan differs from the IPP. The question stems in part from the fact that while the IPP rules have been around since 1991, advisors servicing the retail market are typically unfamiliar with other types of registered pension plans since those are normally administered by large pension consulting firms.
The INTEGRIS Personal Pension Plan is a combination pension plan. In other words, it offers both a defined benefit pension (using the rules applicable to IPPs) and a defined contribution pension benefit. By deciding each year whether the pension benefit will be accrued using a traditional defined benefit method, or the simpler, defined contribution, (RRSP-like) method, the member of an INTEGRIS plan can optimize tax savings at all ages, and at all income levels.
For example, in years where tax-deductible contributions through INTEGRIS is more generous than under the RRSP rules, the member may decide to save using the defined benefit component of the plan. However, in the following year, if the member has other uses for corporate cash (or is facing a lean year), the member can opt to save under the defined contribution component of the plan, thereby greatly reducing the cash cost of maintaining the pension plan. This type of flexibility is not common with IPPs since increased funding is expected each and every year as the member grows older.
But the INTEGRIS personal pension plan is much more than simply being a better tax savings vehicle than the RRSP or more flexible than an IPP. When a client appoints INTEGRIS to administer the pension plan, it partners with an organization that has a legal mandate to act in its best interests. This translates into a number of advantages for clients: access to sophisticated service providers, including their supervision and oversight, and substantial economies of scale. The supervision ensures compliance with administrative rules and peace of mind, while scale translates into additional savings. Traditional providers of IPPs do not offer to act as a fiduciary (or legally-responsible entity) of the pension plan, their role is that of service provider. While some IPP service providers can deliver their services in a competitive manner, they are restricted by the fact that their clients are retail customers and economies of scale are difficult to achieve due to the individualized nature of individual pension plans. As service providers, they do not have a legal obligation, mandated by pension legislation, to act as a fiduciary.
Finally, an INTEGRIS personal pension plan is similar in nature to a miniature large-scale public sector pension plan. The investment options available to an INTEGRIS plan mirrors those of its large counterparts such as the Teachers’ Pension Plan of Ontario or the Ontario Municipal Employees Retirement System (OMERS). This means that an INTEGRIS plan can invest in assets classes that are not permitted for RRSPs. While IPPs can technically invest in a similar fashion, this specialty market has not yet been developed in Canada. INTEGRIS was designed to change the way professionals and entrepreneurs save for retirement by giving clients access to the same level of sophistication that is enjoyed by civil servants, teachers and employees of large corporations.
In light of the new tax rules that penalize passive investments within CCPCs, advisors must understand how pension legislation can become a powerful tool to deal with wealth succession, business succession, and tax optimization within a corporate environment.Learn more about the ppp101 course