GBL, one of our providers of retirement, health, and cross-border solutions for business owners across Canada, has received inquiries regarding the Individual Pension Plan (IPP) and a competitor’s offering called the Personal Pension Plan. The purpose of this document is to outline the similarities and differences and to debunk any myths surrounding one option over another.
It is important to note the Defined Benefit (DB) component of the Personal Pension Plan which is in most cases the only component of the Personal Pension Plan that is utilized, is ultimately an IPP and it is therefore registered as such with CRA. There is no legislation in the Income Tax Act (ITA) that refers to a Personal Pension Plan. The IPP legislation is what governs the Personal Pension Plan.
In reality, by choosing the Personal Pension Plan, you would pay significantly higher fees for something you most likely do not need and will not use.
The Personal Pension Plan is marketed outlining several benefits but based off conversations we’ve had with advisors and clients the Personal Pension Plan’s promoters frequently fail to mention that many of these are also offered inside an IPP.
Higher ongoing contributions than regular RRSPs✓✓
Additional company contributions for past service✓✓
Transfer in RRSP funds as Additional Voluntary Contributions (AVCs)✓✓
Investment management and plan related fees are tax-deductible to the company✓✓
Ability to make tax-deductible top ups when plan has a deficit✓✓
Terminal Funding options✓✓
DIFFERENCES – How Significant Are They?
The following table outlines the differences between the Personal Pension Plan and the IPP. You will notice that many of the differences are not differences at all and favour the IPP.
FeesGBL has a flat fee structure which is $1,500-$1,800 for a single member IPP depending on province of residence.Offers multiple fee structures which are all considerably higher. The fee structure can have both a flat fee, which is higher than GBL’s, and an additional fee based on the percentage of assets. This can amount to 3 – 4 times more in Personal Pension Plan fees than GBL’s IPP fees. IPP
ComplexityOne account for the IPP even with multiple members. Much easier to reconcile and explain to clients.Up to 3 accounts for each member. In the case of a two member plan, that would mean 6 separate accounts. Can also further complicate a portfolio review.IPP
Flexibility of ContributionsDeficit and annual funding not enforced for Connected member plans in the majority of provinces.Can toggle between DC and DB. Unlike with the IPP, current service is eliminated during DC years and lost DB contribution room cannot carry forward to be used in future years. This renders the Personal Pension Plan’s DC provision more harmful than beneficial in most provinces. This means that if you elect the DC in any given year, you won’t be able to get the additional contribution room that is created with the DB plan.IPP
Plan AdministrationGBL’s in-house actuaries handle all administrative functions. All IPP providers operate similarly as this provides the best customer service for clients.Without in-house actuaries, the provider handles some administrative functions and outsources others. Being the only firm offering the Personal Pension Plan provides less portability to the plan should they cease to provide administration.IPP
Age RequirementThe IPP is advantageous after age 40. We recommend our clients save fees and use an RRSP up to age 40. This is the same as using a DC plan prior to age 40 with the added benefit of saving the client substantial annual fees charged by the Personal Pension Plan.Can use the DC component before age 40. Max contribution is the same as an RRSP with no additional contribution room, but client would incur additional fees.IPP
Investment OptionsAny pension-eligible investments. Cannot hold more than 10% in a single securitySame should hold true. Same
Locked-in NatureAll Past Service transfers and ongoing contributions are locked in, except for AVCs. Most provinces offer unlocking of portion as high as 100% at retirementSame as IPP.Same
In looking at the differences between the 2 structures, there is no objective advantage to the Personal Pension Plan offering. The pricing is significantly higher in order to have a Defined Contribution option which is rarely used, the Actuarial service is external which can create delays and disruptions to the service, and the use of multiple accounts can create confusion and unnecessary complexity.
For more information on IPP’s contact us.