# Individual Pension Plans (IPP)



## Mike59 (May 22, 2010)

Does anyone have experience with IPPs as part of a retirement plan? 

I am incorporated, and have not contributed much to my RRSP for a variety of personal reasons...IPP sounds like a good way to go in a few years, but there's obviously lots of data together before embarking on such a huge task.

Would these plans be adjusted to account for inflation as time goes on? Is there a calculator somewhere online that can predict your annual payout in retirement for different levels of investment?

I have read through some articles online that list the pros/cons in comparison with RRSPs, but would be interested to hear some practical pointers from those who either have one, or those who've helped others set up such a plan. Thanks for any advice!


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## MoneyGal (Apr 24, 2009)

I am going to respond on your inflation and payout questions. 

An IPP must include a payout formula, and then the payments into the plan must be sufficient to match the expected payouts, whether they include an adjustment for inflation or not. (That is, you can choose, when you set up the plan, whether it will have an inflation adjustment factor or not.) 

Let's say you decide the payout from your IPP will be 2% of salary plus a 2% inflation adjustment (an increase) each year after retirement. In order to support that level of payout (which has an actuarial present value), a certain amount of contributions will be required over time. 

Because an IPP is analogous to a DB pension plan, the amount of the payout is known in advance and defined by a formula. What isn't known at the outset is the amount of contributions required to finance a given expected payout. You will decide the formula your plan will adopt very carefully, based on maximizing the net tax benefit to your company. 

Long story short: if you set up an IPP, you will need to decide the payout you want your plan to provide. The tax-planning opportunity of an IPP is deducting and sheltering the (larger-than-RRSP limits) contributions you would need to make to support the plan. In setting up an IPP, you will think like a pension plan owner (not recipient) because, although you will be both, the (tax) benefits primarily accrue on the owner side.


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