Personal Pension Plans: A Pension Solution for Small Business Owners

The pension battle lines have been drawn. On one side are the pension “haves” – the shrinking one-third of workers with a workplace pension plan – and on the other side are the pension “have not’s” – the growing two-thirds without any workplace pension coverage. With an expanded CPP off the table, each province has taken its own approach to address the looming retirement crisis. Ontario has made its own pension plan in the Ontario Retirement Pension Plan.

While the ORPP addresses the lack of pension coverage in Ontario, what about workers in other provinces? One area pension coverage has always been lacking is self-employment. Saving for retirement is especially challenging for small business owners, who also need to worry about managing the daily cash flow needs of their business. In terms of saving for retirement, entrepreneurs have limited options. A lot of entrepreneurs save for retirement by contributing to RRSPs. While RRSPs offer many advantage, there’s another option to consider: the Personal Pension Plan (PPP).

What is the Personal Pension Plan (PPP)?

The Personal Pension Plan – or PPP for short – is similar to the Individual Pension Plans (IPPs), but without the shortcomings. Created by INTEGRIS, the PPP surpasses virtually all other conventional retirement savings methods. The PPP offers the stability of a defined benefit pension plan without the costly overhead and complex governance. The PPP is ideal for entrepreneurs looking for a better way to invest tax-deferred corporate dollars to supplement government benefits like CPP and OAS and non-registered savings. With the PPP, you can enjoy a “cream of the crop” pension plan similar to teachers and civil servants.

What are the Advantages of PPPs?

PPPs offer many advantages for small business owners. PPPs offer greater flexibility than IPPs: unlike IPPs, you don’t have to continue to make contributions when times are tough. With the combination plan, you have the added flexibility of being able to switch between Defined Benefit and Defined Contribution, which is ideal if you’re running a cyclical business.

Protect Your MoneyA lot of small business owners balk at how complicated IPPs can be to set up and administer. Not only do you need to hire your own actuary, you also need an investment manager and custodian to look after the funds.  Not so with PPPs. Although the PPP is a registered pension plan and is owned by the small business owner, it’s a turnkey pension solution. PPPs are set up and administered by INTEGRIS. You don’t need to worry about hiring an actuary or managing your own pension plan; INTEGRIS and its partners take care of everything for you.

Investors these days are a lot more aware of investment fees and rightfully so. Management fees can take a big bite out of your long-term portfolio returns. Unlike IPPs, you’re not negotiating on your own for lower management fees. With PPPs, INTEGRIS negotiates on the behalf of all clients, so you benefit from lower management fees.

PPPs provide a tax-efficient way for small business owners to take money out of their business. PPP contributions are tax deductible, lowering your business’s corporate taxes. Not only will you save on taxes, the management fees associated with setting up the plan are tax deductible.

PPP vs. RRSP

Are you a small business owner looking for a superior way to save towards retirement? Look no further than PPPs. PPPs allow up to 60 percent greater tax-deferred compounding until retirement compared to RRSPs.

For an entrepreneur, your small business is your livelihood. When times are tough, creditors may be able to go after your RRSPs, leaving you with nothing in retirement. With PPPS, not only is your retirement nest egg is protected from claims by creditors, you can do a tax-exempt roll-over of your existing RRSPs to ensure all your retirement savings are protected.

PPPs offer an advantage over RRSPs for high-earners looking to build a sizable nest egg. With PPPs, you’re able to put away more money. With RRSPs you’re able to contribute 18 per cent of your earned income up to a capped amount ($24,930 in 2015). If you chose a defined contribution PPP, your contribution limit is still based on 18 per cent of your earned income, but with a higher limit ($25,370 in 2015). The extra $440 can really add up over your time.

With over 1.2 million professionals and small businesses owners out there, PPPs are a pension plan worth serious consideration.

Written by Sean Cooper

Sean Cooper is a Pension Analyst with a global pension and benefits consulting firm. He is a financial journalist with articles featured in major publications, including the Toronto Star, the Globe and Mail and MoneySense. His areas of expertise include pensions, retirement and health benefits. He has made several media appearances, including Bell Media, Newstalk 1010 and CTV. Follow Sean on Twitter @SeanCooperWrite and check out his personal finance blog at www.seancooperwriter.com.

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