Page 110 - A Canuck's Guide to Financial Literacy 2020

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Tax Deferral Opportunities
▪ Employee can benefit from tax deferred growth
Asset Ownership
▪ Assets belong to the employee even though contributions were done by the
employer. Upon death, the assets are paid to the spouse or estate.
Guaranteed Benefits
▪ Company has to guarantee the required level of retirement benefits, regardless of
market direction
Purchase of Past Service
▪ Recognize years of service, post 1991, through lump sum contributions

Contributing into an IPP

Contributions into an IPP are done by the employee who receives a tax deduction. The
employee is not required to contribute. The contributions are done with the assumption that
the employee will retire at age 65 and will receive the retirement benefit at that age. To
determine the benefit, the employer must use a career average earnings formula and not
the final earnings method.

IPP – Required Rate of Return

The rate of return that the contributions must earn is 7.5%. If the return is less than 7.5%,
then your employer can contribute additional funds which are tax-deductible. As well, CRA
allows the purchase of past service, post 1991, where additional lump sum contributions
could be deposited into the IPP.

Withdrawing from an IPP

When contributed, IPP funds are locked in and may only be used to receive a retirement
benefit. Funds cannot be withdrawn as easily as withdrawing from an RRSP. However, you
do have the option to start the retirement benefit at age 50 but you may hold off doing so
until age 72 at which at that time, you must begin withdrawing an annual minimum, similar
to a Registered Retirement Income Fund.

Options at Retirement

When you retire, your options are to

▪ Receive the retirement benefit as stated in the plan

▪ Use the funds to purchase an annuity
▪ Transfer the funds into a Locked-In Retirement Income Fund (LRIF)