Considerations in Making Your Retirement Decision

May 28 2024

The decision to retire requires careful consideration on what to do with your Individual Pension Plan.

Westcoast Actuaries assists IPP clients in navigating the available options by addressing key questions that may influence the retirement decision.

Does the company intend to continue funding the IPP?

Will the company be sold or dissolved in the future?

What estate and succession planning opportunities exist by maintaining the IPP?

What are the tax implications of winding up the IPP?

1.Maintain the IPP and commence receiving a lifetime pension benefit

The IPP can continue to be funded indefinitely. There are no further current service contributions after pension commencement, however the actuary continues to prepare routine actuarial reports to monitor the sustainability of the pension. Any deficit identified in an actuarial report can be funded by the company.

The IPP also becomes eligible for Terminal Funding after pension commencement, which creates a sizable additional top-up opportunity for the company. Terminal funding provides a valuable deduction opportunity for the company and typically ensures there will be sufficient assets to pay the pension for the member’s retired lifetime.

2.Wind-up the IPP to an RRSP (locked-in in most provinces)

IPPs are often wound up when the sponsoring company no longer intends to fund the plan. Most or all of the assets are eligible for transfer to an RRSP-type account, the eligible amount is prescribed by Canada Revenue Agency and calculated by the actuary. The tax implication of winding up the IPP will depend on the funded status of the plan. An underfunded IPP may be wound up with no tax implication. A richly funded IPP may have a significant taxable portion.

3.Wind-up the IPP by purchasing an annuity

A replicating annuity that matches the IPP benefit can be purchased from a Canadian insurer using the IPP assets. This secures a lifetime income for the IPP member, however ownership of the IPP assets will belong to the insurer. The cost of the annuity may also exceed the IPP assets and a benefit reduction maybe required.

Contact us in advance of your retirement and we will help you with your retirement decision.