1. Your clients want the freedom to choose early retirement. The recent flexibility of acceptable retirement ages has given Canadians more to consider when planning their future. How can you be sure your client will have sufficient asset to be able to choose early retirement? Like any successful business relies on a business plan for its success individuals need a retirement plan. With the help of a financial planning professional this can be a worth while exercise yielding excellent results in future income planning as well as peace of mind today.
2. Your client feels that CPP & OAS will not provide himself or herself with a sufficient standard of living in his or her retirement years. Most Canadians do not feel government benefits alone will be sufficient for retirement. However, it is also true that most Canadians have not taken a structured approach to retirement planning. The Individual Pension Plan has been implemented by many business owners and professionals as a means to contribute up to 60% more than RRSPs allow into their retirement assets.
3. Does your client find RRSP limits, limiting? Incorporated professional and business owner are eligible to set up an Individual Pension Plan and/or Retirement Compensation Arrangement and take advantage of higher contribution amounts than are currently available through RRSPs. In some cases these limits can range from hundreds to tens of thousands of dollars above current RRSP limits.
4. Is creditor proofing your clients’ retirement assets important to you? If your client owns his or her own business and is relying on the sale of the business to fund his or her retirement then creditor proofing those assets now would provide a peace of mind. Retained earnings within a business are vulnerable to the slings and arrows of the business cycle and RRSPs are not completely creditor proofed. Both the Individual Pension Plan and (non-leveraged) Retirement Compensation Arrangement are 100% creditor proofed and allow for contributions to be made from the company directly into your client’s retirement plan of choice.
5. Does your client wish to defer tax on a portion of his or her earnings until their retirement years? If your client makes more than he or she consume in a calendar year then your client may wish to defer tax on a portion of his or her income until he or she retire when their marginal tax rate may be lower. The IPP allows your client to make tax deductible contributions from his or her pre-tax corporate dollars to their Individual Pension Plan. These contributions will not be taxed until your client retires and withdraws an annual pension. The Retirement Compensation Arrangement (RCA) also allows your client to make contributions from their corporation to their RCA until his or her retirement from the company. Both products are unique and appeal to different situations. To find out if these situations apply to your client it is recommended to work with a employee benefit consultant.
6. Has your client considered how much he or she will need in terms of annual income at retirement? It is difficult for many Canadians to translate their contributory plans into annual income needed to support them over their lifetime. The individual Pension Plan is unique from the RRSP in that it provides an individual with various annual income figures depending on that individual’s retirement age. This annual income is based on assumptions specific to the individual. Other factors used to ensure a Pension Benefit includes annual contributions made to the Plan as well as market performance. Every 3 years the Actuary will review the plan making sure it stays on track.
7. Has your client seen the market drop dramatically in the past few years and wondered if there is any protection for his or her retirement savings? Unlike the RRSP there are conservative investment guidelines for Pension Plans. They must be diversified, a safety first approach to investing. Also, they must earn an interest rate of 7.5%. Many Canadians have seen their RRSP assets depreciate over the past 5 years with no recourse or additional contribution room to make up for these losses. If for any reason your client’s IPP portfolio underperforms, your client has the opportunity to make up the losses with additional tax deductible contributions – an option not found in the RRSP.
IPPs and the other complementary financial solutions require specialties in areas such as accounting, actuary evaluation, investment management, pension legislation, employment law and employee benefit plan construction. Many financial professionals will need to seek educational and consulting services to aid them in the set-up, maintenance and wind-up stages of these solutions. Therefore, it is well worth the time and money to hire an executive and employee benefit consultant to assist in the design, implementation and maintenance of these solutions.