Retirement-Ready, Self-Employed Business Owners & Incorporated Professionals
In the past few months, I’ve been researching the Personal Pension Plan (PPP®) offered through Integris Pension Management Corp., and have been fortunate to speak directly with their CEO, Jean-Pierre Laporte, a pension lawyer since 2001.
To say Laporte’s contribution to the Pension community has been meaningful, is a gross understatement. An expert witness in pension matters before the courts, and a recipient of the Queen Elizabeth II Diamond Jubilee Medal for his contribution to the development of new forms of retirement savings are just a few of his outstanding achievements to industry and the Nation. He holds himself out as one who can work with fellow Canadian business owners to minimize taxes while protecting their assets. Our emails and phone conversations, as well as other available webinars, recorded interviews, truly inspire me. We discussed artificial intelligence (AI) and Fintech pressuring investment industry offerings, TOSI (tax on split income), TOPI (tax on passive income), and of course, the pressing need to find legitimate corporate tax deductions.
The PPP’s core strength is the multitude of new pension-specific tax deductions that 98% of business owners using RRSPs for retirement completely ignore that Laporte calls Delta “Δ”. These deltas are ways of growing savings in a tax-deferred manner while lowering taxes owing along way within OpCo / HoldCo.
Your accountant, lawyer, investment advisor or family office team can only benefit from an introductory chat with INTEGRIS and its pension specialists. Integris offers an “intake form” to be filled out by the plan administrator (corporation sponsoring the plan) – this information produces the Illustration you receive. This is a very valuable snapshot of the opportunity the PPP poses. I’ll summarize a few key takeaways I found to be outstanding:
• PPP offers a Defined Benefit (DB) component as does an Individual Pension Plan (IPP), with the added benefit of having a defined contribution (DC) component and an Additional Voluntary Contribution (AVC) amount. For a number of technical, actuarial reasons, the PPP is a lot more tax efficient than the IPP and sits at the very top of the hierarchy of retirement savings solutions in Canada.
• Pension rules for qualified (permitted) investments include non-RRSP eligible assets such as units of limited partnerships, raw land and illiquid holdings thus it can mimic what elite investors, super wealthy, sovereign wealth funds, large pension plans invest in.
• Ability to take greater risk as “back-fill” underperforming PPPs to actuarial value retroactively (not applicable to RRSP)
• In Ontario and in a few other provinces, rules permit plan to not back-fill and reduce pension amount (* plan member must own +10%)
• Investment management fees become additional deductions to Corporation, not the plan, so deductible to Corporation and more return for PPP portfolio
• Pensions offered top creditor protection in Canada (still subject to family law) but “super priority” over secured creditors
• Interest on loans used to make payments to PPP are tax-deductible even if borrowed from HoldCo
• Plan member can elect to retire early, have a Terminal Funding calculation done, have large one-time deduction to HoldCo and fully fund an early retirement (cash within HoldCo, loan funded etc) and still receive Dividend income
• GST / HST is partially deductible to Corporation (not so with RRSP)
• PPP permits pension income splitting / $4,000 per couple annual pension amount deduction
• PPP multiple deductions vs RRSP or IPP, tax-sheltered growth, income splitting as early as 50 yrs old and spousal rollover.
• Exact same level of market risk as RRSP, but can be lowered through enhanced securities selection and back-fill
• Corporate Trust Company option, unique in Canada to hold assets of the PPP
• Integris oversees Actuarial/Administration Services and provides Fiduciary Oversight acting like a pension committee (investment policy, legal, compliance, admin). Legally, Integris is a Fiduciary of the Plan Member alongside the Plan Administrator (Company sponsoring the PPP)
• Intergeneration Transfer of Wealth: kids can be added to PPP, pension surplus not deemed disposition, no probate, PPP assets deemed surplus – overfunded = contribution holiday for kids in plan, kids can still use RRSP room then roll-over into PPP when room permitted (see how all available tax-deductions used for current-year income tax minimization).
• Cross-subsidization of plan
• Post-career new “consulting” position can be ideal for a PPP.
• Anyone with a Pension Plan can see their “Commuted Value” on their annual pension statement – get pension assets out of failing corporate pension plan (ie airlines, vulnerable industries)
• Pension stays in the family, not lost like in traditional pension
• Ideal: lots of retained earnings in Corp, lots of RRSP to roll into plan, owned business long time = past service, children working in the business,
• Disqualify a candidate if over 71, corporation has no $.
Financial solutions are usually manufactured by large companies with the interests of their shareholders in mind. For once, we now have something conceived for the small business owner in mind. It is incumbent on Canadians to become familiar with the PPP and critically assess whether it is applicable to their particular situation, with the help of their professional advisors. While the writer has come to the conclusion that the PPP is a ‘game changer’ and perhaps the most innovative change in Canada since the TFSA, others must go through their own due diligence journey to arrive at their own conclusions.
To learn more, consult:
R. Brent Lang, CIM, FCSI, Vice-President & Associate Portfolio Manager, MacNicol & Associates Asset Management Inc. (MAAM). He enjoys contributing to enterprising non-profit organizations with an emphasis on social entrepreneurship, social procurement, planned-giving, community impact, donor-relations and board governance.