Icon

IPP Benefits

Normal Retirement Benefits

Benefit Formula

The benefits under IPPs are based on a 2% earnings formula.  All benefits for a non-connected person can be based on the best 3-year average indexed earnings.  For a connected person,  while benefits for pre-1991 pensionable service (if eligible) can be based on best average 3-year indexed earnings, the benefits for post-1990 pensionable service cannot be based on best 3-year average indexed earnings.  Post-1990 benefits for a connected person must be based on "indexed earnings" for each year.

The following examples use a calculation date of January 1, 2014 when the maximum pension limit was $2,770.00.  To find the current maximum pension limit take one ninth (1/9) of the Money Purchase Limit (MP Limit) found on the CRA website.

Example (Non-Connected Member):

A non-connected member retires at age 65 from an IPP as at January 1, 2014 with the following personal information:

Pensionable service (total): 28 years 6 months

Best 3-year average indexed earnings: $80,000

The pension benefits would be calculated as follows:

For each year of pensionable service, the member will receive $80,000 x 2% or $1,600.00 of annual pension.  For total pensionable service of 28.5 years, the member would receive $45,600.00 ($1,600.00 x 28.5) of annual pension.

Please note that the pension amount can not exceed the Income Tax Act's Maximum Pension Limit.  For example, if the member had best 3-year average indexed earnings of $150,000.00 instead of $80,000.00, the member's annual pension per year of pensionable service would be limited to the current maximum pension limit of $2,770.00 instead of $3,000.00 (i.e. 2% of $150,000.00).  The member's annual pension would be $78,945.00 ($2,770.00 times 28.5 years of pensionable service).

Example (Connected Member):

A connected member retiring at age 65 has an IPP as at January 1, 2014 with the following personal information:

Pensionable service: 

  • Pre-1991 - 6 years 3 months (fully pensionable, not 2/3 pensionable)
  • Post-1990 - 22 years
  • Best 3-year average indexed earnings: $135,000
Pensionable earnings for post-1990 pensionable service:

 Year

Earnings 

 1991

$50,000 

 1992

$60,000 

 1993

$60,000

 1994

$65,000

 1995

$65,000 

 1996

$70,000 

 1997

$70,000 

 1998

$125,000 

 1999

$100,000 

 2000

$80,000 

 2001

$80,000 

 2002

$80,000 

 2003

$85,000 

 2004

$85,000

 2005

$85,000 

 2006

$90,000 

 2007

$90,000 

 2008

$90,000 

 2009

$95,000 

 2010

$95,000 

 2011

$95,000 

 2012

$95,000 

 2013

$95,000



The annual pension amount is calculated as follows:

For pre-1991 service, the benefit is 2% of best 3-year average indexed earnings per year of service, i.e. $135,000 x 2% = $2,700.00.  The unit pension is $2,700.00 to arrive at an annual pension of $16,875.00 ($2,700.00 per year x 6.25 years) for pre-1991 pensionable service.

For post-1990 service the benefit is 2% of earnings in the year earned indexed by the increase in the Average Industrial Wage to the year of retirement. Each year's accrual is limited to the Maximum Pension Limit in the year of retirement. The calculation is shown in the following table:


 

 Year

Earnings 

Wage Index Increase 

Indexed Earnings 

Accrued Annual Pension (2%) 

 1991

50000

75.37%

$87,685.77

$1,753.72

 1992

60000

67.26%

$100,355.72

$2,007.11

 1993

60000

61.23%

$96,737.69

$1,934.75

 1994

65000

56.50%

$101,728.04

$2,034.56

 1995

65000

54.36%

$100,335.54

$2,006.71

 1996

70000

52.11%

$106,478.14

$2,129.56

 1997

70000

50.33%

$105,233.73

$2,104.67

 1998

125000

46.30%

$182,868.79

$3,657.38

 1999

100000

44.32%

$144,321.24

$2,886.42

 2000

80000

42.70%

$114,157.57

$2,283.15

 2001

80000

39.98%

$111,985.12

$2,239.70

 2002

80000

38.04%

$110,431.58

$2,208.63

 2003

85000

36.72%

$116,214.86

$2,324.30

 2004

85000

33.05%

$113,091.94

$2,261.84

 2005

85000

29.43%

$110,012.84

$2,200.26

 2006

90000

25.61%

$113,052.73

$2,261.05

 2007

90000

21.46%

$109,312.43

$2,186.25

 2008

90000

17.57%

$105,815.48

$2,116.31

 2009

95000

13.31%

$107,639.76

$2,152.80

 2010

95000

10.98%

$105,433.85

$2,108.68

 2011

95000

8.52%

$103,098.68

$2,061.97

 2012

95000

4.62%

$99,390.42

$1,987.81

 2013

95000

2.69%

$97,555.68

$1,951.11

TOTAL

 

 

$49,854.95**

**Limited to the current Maximum Pension Limit of $2,770.00.

The total pension amount is therefore $66,729.75 per annum ($16,875.00 for pre-1991 and $49854.95 for post-1990) or equivalently $5,560.83 per month.  This is payable under the normal form of pension.


Early Retirement Benefits

The IPP member can retire as early as age 50.  The benefit at early retirement would be the pension that is actuarially equivalent to the pension payable at normal retirement age (65).  At the discretion of the Company, the early retirement reduction factor can be eliminated or reduced to provide an enhanced early retirement pension that is higher than the actuarial equivalent amount.  A bridge benefit may also be provided for the pre-65 period.  Please note that the cost for these enhancements in excess of any surplus that exists in the plan at the time of early retirement may require terminal funding from the Company.

Full unreduced pension can be paid at age 60 or even earlier if certain service or age plus service conditions are satisfied.  The minimum required reduction under income tax legislation for early retirement is ¼% per month (3% per year) that the early retirement date precedes the earliest of:

  • age 60 [55],
  • 30 [25] years of service,
  • age plus service equals 80 [75] years, and
  • date of total and permanent disability (non-connected person only).
  • Please note that the figures in [square brackets] are for public safety occupations only.


Benefit Options

The benefit options available on termination, retirement or termination of the pension plan are as follows:

  • an immediate or deferred pension paid from the pension plan;
  • an annuity purchased from an insurance company; or
  • a lump sum commuted value of accrued pension benefits; part or all of the amount may be transferred to RRSP/Locked-In RRSP or RRIF/LIF up to a maximum amount prescribed by Income Tax Regulation.


Normal Form Of Pension

The normal form is a pension payable as follows:

  • Life annuity guaranteed 15 years if member does not have a spouse; or
  • Joint survivor annuity with 2/3 continuation to surviving spouse with a 5-year guarantee if member has a spouse.
  • The pension may be in line with increases in the Consumer Price Index (CPI) less 1% after commencement.  At the discretion of the employer, this may be enhanced to full CPI.  This improvement may trigger additional funding by the employer.

At retirement the member must make an irrevocable election on the form of pension.  For example, the IPP member can elect a joint-survivor 100% (instead of 2/3) at a reduced amount.


Death Benefits

The value of pre-retirement death benefits is equal to the commuted value of the member's accrued pension payable at age 65.  Please note that under most pension legislation the primary beneficiary for death benefits is the spouse, unless a spousal waiver form is signed to allow designation of other beneficiaries.

Post-retirement death benefits depend on the pension option elected by the member at retirement.  For example, if it is a life annuity with a guarantee period, the remaining guarantee period will be paid to the designated beneficiary or estate.  If it is a joint-survivor annuity, pension at a pre-selected continuation percentage at retirement will be continued to be paid to the spouse, if then living, for the spouse's remaining lifetime.


Termination Benefits

The member can elect either a deferred pension commencing at normal retirement date (age 65) equal to the amount of accrued pension or a lump sum equal to the commuted value of the member's accrued pension payable at age 65.


Surplus Ownership

The standard Westcoast Actuaries Inc. Individual Pension Plan (IPP) stipulates that the member owns all the surplus under the plan.  The residual assets after the later of the death of the pensioner or his surviving spouse will be paid to the beneficiary or estate of the pensioner or the surviving spouse, as applicable. Therefore, the IPP is more or less on a "consumption" basis like an RRSP.  All assets in the plan will eventually be paid to the member (pensioner), the surviving spouse or the beneficiary or estate of the last survivor so there is no loss or forfeiture in the value of the pension.

 

Content

【A】


Actuarially Equivalent - A benefit of equivalent actuarial present value when computed on the basis of interest, mortality and/or other rates and tables.


【B】



【C】


Canada Pension Plan (CPP) - A governmental pension plan that provides benefits to workers and their beneficiaries in Canada except Quebec in the event of retirement, disability or death.


CRA - Canada Revenue Agency - also known formerly as: Canada Customs and Revenue Agency; Canada Customs, Excise and Taxation; Revenue Canada, Taxation; and Department of National Revenue.


Commuted Value - A lump sum amount that is actuarially equivalent to a pension determined using certain actuarial bases. Most commuted values are determined in accordance with the Canadian Institute of Actuaries Revised Standards of Practice for Determining Commuted Values (CIA Commuted Value Standard), which came into effect April 1, 2011. Prior to April 1, 2011, commuted values were mostly calculated in accordance with the Canadian Institute of Actuaries Standard of Practice for Determining Commuted Values which came into effect on February 1, 2005.


Connected Person- A person who owns directly or indirectly 10% or more of any class of shares of a company or is not dealing at arm's length with such person.


Consumer Price Index (CPI) - A statistic that measures the change in the cost of living for consumers.  It is often used to measure inflation.


【D】


Defined Benefit (DB) - A pension design that defines the benefits payable at retirement.  The contribution amount is determined through actuarial valuation.  If a plan is registered for tax purposes, the maximum pension payable is defined by tax regulations.

Defined Benefit Limit (Defined Benefit Pension Plans) - The maximum amount of annual pension that can be paid from a defined benefit pension plan to a member for each year of pensionable service (or called credited service).  Based on current tax rules, the limit can be found on the CRA website. The limit is defined as the greater of $1,722.22 and 1/9 of the Money Purchase Limit.

2/3 Pensionable - Please note that for pre-1990 pensionable service recognized after June 7, 1990, the limit is only $1,150.00 (instead of $1,722.22) for years up to and including 2003 and 2/3 (two-thirds) of the Defined Benefit Limit for years after 2003.  These years of pre-1990 service are usually referred to as 2/3 pensionable.


Defined Contribution (DC) - A pension design that defines the amount of contributions, usually a percentage of salary.  The benefits payable at retirement depend on factors such as future investment return and annuity rate at retirement.  If a plan is registered for tax purposes, the maximum contribution amount (usually a percentage of earnings or income up to a dollar limit) is defined by tax regulations.


Defined Contribution Limit or Money Purchase Limit (Defined Contribution Pension Plans) - The maximum dollar amount of contribution that can be contributed to a defined contribution pension plan on behalf of a member.  Based on current tax rules, the aggregate contribution limit (the total of employer regular, employee regular and employee voluntary)  can be found on the CRA website. After 2016 the limit will increase at the rate of increase of the Average Industrial Wage Index for Canada.


Designated Plan - A Designated Plan is defined in Income Tax Regulation 8515(1) as a Registered Pension Plan that is primarily for the benefit of Connected Persons and Highly-Paid Employees.

【E】



【F】



Flexible Pension Plan - A defined benefit pension plan that allows plan members to earn Optional Ancillary Benefits by making Optional Ancillary Contributions.


【G】



【H】



Highly-Paid Employee - An employee who is paid at least 2.5 times the Year's Maximum Pensionable Earnings (YMPE) as defined by the Canada Pension Plan. The current YMPE can be found on the CRA website.

【I】



【J】


【K】



【L】


Life Income Fund (LIF) - A type of RRIF under which the owner must withdraw each year an amount that is between a minimum percentage prescribed by the Income Tax Act (Canada) and a maximum percentage prescribed by pension legislation (click here for applicable percentages for B.C.).


Locking-In - A condition imposed by pension legislation that requires funds either be used to provide a pension at retirement or be kept in a locked-in plan such as a Locked-In RRSP, LIRA, LRIF or LIF.


Locked-In Retirement Account (LIRA) - A type of RRSP where the funds are subject to locking-in under pension legislation. These funds must be used to purchase a life annuity, or be transferred to a LIF or an LRIF by the end of the year the owner attains age 71 at the latest. It is available in all jurisdictions except under the federal PBSA which provide for the locked-in RRSP that is very similar to the LIRA.


Locked-In Retirement Income Fund (LRIF) - A type of RRIF under which the owner must withdraw each year an amount that is between a minimum prescribed by the Income Tax Act (Canada) and a maximum amount prescribed by pension legislation. The LRIF is only available in Manitoba and in Newfoundland and Labrador.


Locked-In RRSP - A type of RRSP that is available under the federal PBSA to maintain funds that are locked-in as required by pension legislation. These funds must be used to purchase a life annuity or be transferred to a LIF by the end of the year the owner attains age 71 at the latest.


【M】


Maximum Transfer Limit - The maximum amount that can be transferred from a defined benefit pension plan to a money purchase provision (defined contribution pension plan, RRSP or RRIF) according to Income Tax Regulation 8517.  Please click here for details.


Money Purchase Limit - Refer to Defined Contribution Limit.


【N】


【O】



Office of the Superintendent of Financial Institutions (OSFI) - The entity that ensures pension plans governed by the Pension Benefits Standards Act, 1985 (PBSA) comply with the act and are administered in accordance with its requirements.


Old Age Security (OAS) - A monthly pension paid to Canadians over age 65 out of Government general revenue.


Optional Ancillary Benefits (OAB) - Benefits which are provided by Optional Ancillary Contributions under a Flexible Pension Plan.


Optional Ancillary Contributions (OAC) - Contributions made under a Flexible Pension Plan in order to acquire Optional Ancillary Benefits.


【P】


Past Service Pension Adjustment (PSPA) - Any pension benefits earned in a year after 1989 would reduce an individual's RRSP deduction limit for the following year through the reporting of a Pension Adjustment (PA).  If post-1989 past service benefits are provided or improved, it would trigger a provisional Past Service Pension Adjustment (PSPA) for the pension plan member which must be satisfied through one (or a combination) of the following means before such post-1989 past service benefits can be provided:

1.     Approval by CRA of Form T1004 (Applying For The Certification Of A Provisional PSPA) filed with them.  CRA will approve the form if the individual has sufficient unused RRSP room carried forward to satisfy the PSPA amount.  Please note that the individual's unused RRSP room would be reduced by the PSPA amount upon CRA's approval; or

2.     Transfer (tax-free) an amount from the pension plan member's RRSP or account in a Defined Contribution (DC) Pension Plan to the pension plan that provides the past service benefits.  Such transfer is commonly referred to as a Qualifying Transfer; or

3.     Withdraw an amount from the pension plan member's RRSP using CRA Form T1006 (Designating An RRSP Withdrawal As A Qualifying Withdrawal).

 
Pension Adjustment (PA) - Starting with 1990, a Pension Adjustment (PA) is reported on a pension plan member's T4.  The PA would reduce the member's RRSP deduction limit for the following year.  PA for a Defined Contribution (DC) pension plan member is the total employee and employer contributions made on the member's behalf as well as any forfeitures allocated to the member.  PA for a Defined Benefit (DB) pension plan member is calculated by a formula.  In simplified terms, it is equal to the annual pension amount earned by the member during the year first multiplied by 9 then subtracted by a prescribed amount ($1,000 for years before 1997 and $600 for 1997 and after).


Pension Adjustment Reversal (PAR) - The purpose of a PAR is to restore RRSP contribution room when an employee's membership in a provision of an RPP or DPSP stops and their termination benefit is less than the sum of PAs and PSPAs that have been reported to the Canada Revenue Agency (CRA). The PAR is reported to the CRA so that the employee's RRSP contribution room that was previously reduced by a PA or PSPA can be restored.
A PAR must be reported any time an individual stops being a member of a provision or plan after 1996. An individual does not have to terminate employment, only terminate plan membership.


Portability - The legislated right for an individual to transfer vested benefits to another registered retirement plan upon termination of employment or membership.


【Q】



Qualifying Transfer from RRSP - Transfer from a pension plan member’s personal RRSP to satisfy PSPA. For new plans, the Qualifying Transfer must be processed within 90 days of official registration by CRA.

Quebec Pension Plan (QPP) - A governmental pension plan similar to CPP that provides benefits to workers and their beneficiaries in Quebec in the event of retirement, disability or death.


【R】


Registered Disability Savings Plans (RDSP) - A registered disability savings plan is a trust arrangement between a holder and an issuer (a trust company in Canada). The purpose of such a plan is to provide for the long term financial security of a beneficiary who has a prolonged and severe physical or mental impairment and is entitled to the Disability Tax Credit. The RDSP is being administered jointly with Human Resources and Skills Development Canada (HRSDC).

Registered Pension Plans - A Registered Pension Plan (RPP) in Canada is a plan that is registered with Canada Revenue Agency for tax purposes under Section 147.1 of the Income Tax Act and if applicable the federal or provincial pension regulator.  The plan can be on a Defined Benefit (DB) or Defined Contribution (DC) basis.

Registered Plans - Plans such as Registered Pension Plans, Registered Retirement Savings Plans, Deferred Profit Sharing Plans, etc. that are registered for tax purposes.  Contributions to registered plans by the employer, employee or individual are deductible subject to limits.  Investment income earned by a registered plan is not taxed.  Benefits paid from a registered plan are taxable to the member or beneficiary when received.

Registered Retirement Income Fund (RRIF) - An arrangement under which the owner must withdraw each year a minimum amount prescribed by the Income Tax Act (Canada).  Funds usually originated from matured RRSPs or transfers from other registered plans.

Registered Retirement Savings Plan (RRSP) - A registered savings vehicle under Section 146 of the Income Tax Act arrangement into which an individual makes contributions for retirement savings purposes.

Related Person - Please see 
here for the full definition according to Section 251 of the Income Tax Act.

RRSP deduction limit -
The RRSP deduction limit for a year is the taxpayer’s unused RRSP deduction room at the end of the preceding taxation year, plus 18% of prior year earned income up to the RRSP maximum dollar limit for the current year less the Pension Adjustment (PA) for the prior year.

RRSP maximum dollar limit - The maximum dollar limit for RRSP can be found on the CRA website. Please note that these dollar limits are always one year behind the Money Purchase Limit to allow for reporting of Pension Adjustment (PA) on T4.

Retirement Compensation Arrangement (RCA) - An arrangement defined in subsection 248(1) of the Income Tax Act (Canada) under which an employer, former employer, or in some cases an employee, makes contributions to a custodian.  The custodian holds the funds in trust with the intent of eventually distributing them to the employee (beneficiary) on, after, or in view of retirement, other severance from employment, or any substantial change in the services the employee provides.

【S】

Spouse - See Provincial Pension Acts   – Definition of Spouse.   

【T】

Tax Free Savings Account (TFSA) - Starting in 2009, Canadian residents who are 18 years of age or older are able to earn tax free investment income within a TFSA during their lifetime. The maximum amount that can be contributed to a TFSA can be found on the CRA website. This amount will be indexed to inflation and rounded to the nearest $500 in subsequent years. Unused TFSA contribution room can be carried forward to later years. The total of TFSA withdrawals in a calendar year is added to the TFSA contribution room for the next calendar year. The CRA is responsible for monitoring and operating the TFSA, as applicable under the Act.


【U】




【V】



Vesting - This term refers to the acquisition of an unconditional right to pension benefits by a pension plan member after the completion of a certain period of employment or membership and sometimes the attainment of a certain age.  If a member is not vested at termination, he or she will be entitled to a refund of his or her own contributions, if any, with interest.


【W】




【X】




【Y】



Year's Maximum Pensionable Earnings (YMPE) - The amount of earnings each year as defined for purposes of determining the maximum amount of contributions payable to and the maximum amount of benefits payable from the CPP/QPP.  The amount increases annually at the rate of average wage growth in Canada.


【Z】