INDIVIDUAL PENSION PLANS

Transcription

1 INDIVIDUAL PENSION PLANS Presented by: Michael Hogg CFP, CIM H.BA (Econ), FCSI Derek Hauber CFP, CIM, H.BA, FCSI

2 WEALTH MANAGEMENT TEAM Client Needs Estate Plan Retirement Insurance Assist Children Assist Parents Wills Investments Income Education Living Expenses Protection Taxes RRSP Asset Protection Special Needs Trusts IPPs Disability Heirs Inheritance Charitable Giving

3 5 Reasons to establish an IPP Professional Wealth Management Significantly increase retirement savings Corporate tax deduction small business tax rate Creditor Proof Succession Planning Assist in sale of business

4 What is an Individual Pension Plan Defined Benefit Registered Pension Plan (RPP) typically for one or two members Designed to maximize contributions permitted by the Income Tax Act, based in 2007 Maximum pension benefit of $2,222 per year of service

5 Why are IPP s so popular now? Professional Wealth Management Q: A: IPPs have been around since the early 90s so why are they are becoming more popular now? Business owners are aging & IPPs are more beneficial for those over 40 Greater past service funding ability as we can go all the way back to 1991 Fees are much lower now due to competition & technology

6 Suitable Candidates Incorporated business owners Incorporated professionals Senior executives

7 Works best for. Individuals between the ages of 40 and 71 years Individuals earning T4 income of $111,111 Individuals with past service dating back to 1991

8 IPPs and RSPs A comparison Professional Wealth Management Age in 2007 RSP Contribution IPP Current Service Past Service Employer Cost Maximum First Year Contribution 40 $19,000 $20,694 $48,069 $68, $19,000 $22,730 $80,659 $103, $19,000 $24,967 $116,456 $141, $19,000 $27,423 $155,775 $183, $19,000 $30,128 $199,058 $229, $19,000 $45,629 $517,657 $563, $19,000 $50,472 $608,871 $659,343 * Assumes past service to 1991 and $111,111 annual income. RSP transfer of $273,000 not included.

9 Eligible Employer Tax Deductions Current service contributions Past service top up contribution Contributions to shore up any future deficits Optional contribution at retirement (terminal funding) Interest on loan to make an IPP contribution Actuarial, administration and accounting fees Investment management fees

10 Additional Benefits IPP assets are fully creditor protected Flexibility of funding Plan surplus belongs to member Succession planning opportunities if plan is in a surplus position Flexible retirement options

11 Payment Options at Retirement Professional Wealth Management Transfer IPP funds to a locked-in RSP, (except in Quebec & PEI) Pay pension from IPP at retirement Purchase an annuity

12 Case Study 1 Incorporated since 1991 Earning minimum T4 income of $111,111 Contributed to an RSP Age: 55 Year Age RRSP Past IPP Current IPP Total RSP RSP Total Transfer ($) Service Cost ($) Cost ($) Employer (RSP+ Employer Cont. ($) Employer costs) , ,223 27, ,365 19, , , ,033 24, , ,572 1,959,714 32,003 1,007,799

13 Case Study 2 Incorporated business owner with no past service Earning T4 income in excess of $111,111 Age:: 40 Year Age IPP IPP Total RSP RSP Total Contribution Contribution ($) ($) ,694 21,456 19,000 19, , ,820 24, , , ,450 32, , ,234 1,015,801 41, , ,905 1,914,034 54,666 1,448, ,591 4,214,327 71,446 2,463,671

14 Investment Strategy Investment Strategy? 9% Surplus Return Objective 7 1/2% Deficit 5% Start Date Valuation Year Additional contributions can be made to shore up any deficit Some measure of surplus can be retained without limiting contributions (generally 2 times annual contribution)

15 IPP Annual Administration Calculation of Pension Adjustment (PA) Annual Information Return (to CRA and provincial regulators) Pre-completion of T3P (Trustees Tax Declaration) Annual member statement Investment Information Summary (in Ontario) Quarterly Contribution Summary reports and monitoring

16 Fees for services provided by Buck Consultants Professional Wealth Management Single member plan (with past service) Documentation: $1,500 Initial Actuarial Valuation: $1,800 Total Year One Cost: $3,300 RBC DS Subsidy -$300 Total Client Cost $3,000 No Past Service $2,000 Annual Administration $750 Periodic Valuations Each 3 rd or 4 th Year: $1,500 Two member plan (with past service) Documentation: $1,500 Initial Actuarial Valuation: $2,700 Total Year One Cost: $4,200 RBC DS Subsidy -$300 Total Client Cost $3,900 No Past Service $2,250 Annual Administration $750 Periodic Valuations Each 3 rd or 4 th Year: $2,250 * Additional fees may include provincial registration of the plan (where applicable), special services provided by Buck Consultants, and plan termination costs. Quotes for special services and plan termination will be provided to the plan sponsor in advance.

17 The strategies, advice and technical content in this presentation are provided for the general guidance and benefit of our clients, based on information that we believe to be accurate, but we cannot guarantee its accuracy or completeness. This presentation is not intended as nor does it constitute legal or tax advice. Clients should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy. This will ensure that their own circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change. This presentation has been prepared for use by RBC Dominion Securities Inc.* and RBC DS Financial Services Inc. (collectively, the Companies). The Companies and Royal Bank of Canada are separate corporate entities which are affiliated. In Quebec, financial planning services are provided by RBC DS Financial Services Inc. which is licensed as a financial services firm in that province. In the rest of Canada, financial planning services are available through RBC Dominion Securities Inc., and RBC DS Financial Services Inc. Insurance products are only offered through RBC DS Financial Services Inc., a subsidiary of RBC Dominion Securities Inc. Unless otherwise indicated, securities purchased from or through RBC Dominion Securities Inc. are not insured by a government deposit insurer or guaranteed by Royal Bank of Canada and may fluctuate in value. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member CIPF. Registered Trademark of Royal Bank of Canada. Used under licence. RBC Dominion Securities is a registered trademark of Royal Bank of Canada. Used under licence. Copyright 2007 Royal Bank of Canada. All rights reserved.

18 Thank You!