1. IPP inc. Actuaries and Retirement Plan Specialists The Individual Pension Plan Presentation on behalf of: The Banff School

2. IPP inc. Presentation Overview  Demonstrate the Individual Pension Plan advantage  Outline market potential  Identify who can benefit from an IPP  Provide IPP examples  Review the administration process

3. IPP inc. What is an IPP?  The IPP: –a defined benefit pension plan for one individual can include a spouse  The IPP Objective: –to fund the maximum pension permitted under the Income Tax Act  Marketing Approach: –an RRSP on steroids

4. IPP inc. The IPP Advantage  Employer sponsored registered pension plan  Member owned assets  Significant tax deductions  Creditor proof  Tax deductible employer expenses  Asset top-up  Tax-effective corporate compensation strategy

5. IPP inc. Market Potential  Currently: –estimated 7,000 IPPs in Canada –4,000 in last three years  Potential: –over 300,000 IPPs –over $200 billion in assets

6. IPP inc. Why the Movement to IPPs?  Explosion of self employment in the 1990’s  Mass retirement exodus beginning 2010  Require tax-effective corporate asset withdrawal strategy  Convinced RRSP retirement income will be inadequate

7. IPP inc. Industry Comments  “Four out of five baby boomers wish they had started saving for their retirement sooner, and 70% now fear they may not have put away enough...” Source: Ipsos Reid  “Only 28% of boomers are very confident that they will be financially secure in their old age” Source: State of the Baby Boomer – BMO Financial Group  “A third of boomers are concerned that their standard of living will drop in retirement” Source: State of the Baby Boomer – BMO Financial Group

8. IPP inc. Model IPP Member  Individual –owner/ manager incorporated professional corporation –executive  Age –40 to 71  Earnings –consistent high T4 earnings  Service –with current company from 1991  Requirement –more tax-sheltering than is available under an RRSP

9. IPP inc. Past Service  Past Service –can recognize service before the plan effective date –cannot have both a maximum pension and a maximum RRSP  Qualifying Transfer –required transfer of RRSP funds –becomes an IPP asset –subject to pension rules

10. IPP inc. IPP Example 1 Member age 50 with maximum earnings and service to 1991 For an IPP effective January 1, 2007 2007 IPP Contribution Total Past Service Liability$404,500 Qualifying Transfer273,000 Past Service Liability$ 131,500

11. IPP inc. Current Service  Current Service Liability –cost for the current plan year –employer cost/ deduction

12. IPP inc. IPP Example 1 Member age 50 with maximum earnings and service to 1991 For an IPP effective January 1, 2007 2007 IPP Contribution Contribution for 2007$25,300 Past Service Liability131,500 Sub-total$156,800 Qualifying Transfer273,000 Total IPP Asset$ 429,800

13. IPP inc. Past Service  Past Service Liability –maximum immediate funding amount$ 131,500 –can be amortized $ 30,200 –employer cost/ deduction

14. IPP inc. IPP Example 1 Member age 50 with maximum earnings and service to 1991 For an IPP effective January 1, 2007 YearMaximum Payment Minimum Payment RRSP Maximum 2007$ 156,800$55,500$19,000 2008$26,200$56,400$20,000 2009$28,200$58,400$21,000 2010$30,300$60,500$22,000

15. IPP inc. IPP Advantage Member age 50 with maximum earnings and service to 1991

16. IPP inc. IPP Example 2 Member age 50 with maximum earnings and service to 1999 For an IPP effective January 1, 2007 2007 IPP Contribution Contribution for 2007$25,300 Past Service Liability54,900 Qualifying Transfer147,200 Total IPP Asset$ 227,400 Maximum Payment$ 80,200 Minimum Payment$ 37,900

17. IPP inc. IPP Example 3 Member age 50 with $50,000 earnings and service to 1991 For an IPP effective January 1, 2007 2007 IPP Contribution Contribution for 2007$11,400 Past Service Liability93,400 Qualifying Transfer124,000 Total IPP Asset$ 228,800 Maximum Payment$104,800 Minimum Payment$ 32,900

18. IPP inc. IPP Example 4 2007 IPP contribution with maximum earnings and service to 1991 Age 2007 IPP Contribution RRSP Contribution IPP Advantage 40$83,200$19,000$64,200 45$118,200$19,000$99,200 50$156,800$19,000$137,800 55$199,100$19,000$180,100 60$245,500$19,000$226,500 62$265,400$19,000$246,400 For an IPP effective January 1, 2007

19. IPP inc. IPP Example 5 Annual IPP contribution Age 2007 2008 Contribution 2009 Contribution 2010 Contribution 40$21,700$23,300$25,000 45$23,800$25,600$27,500 50$26,200$28,200$30,300 55$28,800$31,000$33,300 60$31,600$34,000$36,600 62 RRSP $32,800 $20,000 $35,300 $21,000 $37,900 $22,000

20. IPP inc. Funding Considerations  Recognizing Past Service –at plan start-up –as funds become available  Maximum Contribution –lump sum at start-up –current service  Minimum Contribution –amortized past service –current service  Balancing Plan Assets and Liabilities –plan surplus –plan deficit

21. IPP inc. Early Retirement  Normal Retirement –age 65  Early Retirement –within 10 years of normal retirement  Early Retirement Costs –reduced retirement age –lost investment earnings –CPP bridge benefits –enhanced indexing  Funding Options –immediate payment/ amortized costs –employer cost/ deduction

22. IPP inc. IPP Advantage Member Age 60 at Retirement

23. IPP inc. Retirement Options  Purchase an Annuity –from an insurance company  Transfer Assets to LIF –annual withdrawals from the LIF –minimums and maximums apply  Make Payments From The IPP –IPP continues –payments made from fund –corporate sponsor must remain –actuarial valuation required  Other –any combination of the options

24. IPP inc. Death Benefits  Member with Spouse – pre-retirement –transfer to RRSP/ RRIF/ LIRA/ LIF/ annuity/ RPP –excess paid in cash  Member with Spouse – post retirement –annuity; as per contract –LIF; transfer to Spouse’s RRSP or RIF or cash payment, less tax  Beneficiary –total asset value, less tax

25. IPP inc. Asset Management  Fiduciary Options –corporate trustee –three individual trustees –insurance company  Investment Options –pooled/ mutual funds –individual investments

26. IPP inc. Recent Legislative Developments  50% Unlocking (November 1, 2006) –LIF or LRIF in payment – before December 31, 2007 –IPP/ LIRA – upon conversion to retirement income  LRIF/ LIF (August 10, 2006) –increased maximum annual withdrawals –LIF conversions at age 80 not required  LRIF –to be discontinued December 31, 2007  Mortgage Investments –LIFs and LIRAs can be invested in non-arm’s length mortgages  Registration with Alberta –no longer required

27. IPP inc. Recent Legislative Developments 2007 Federal Budget  Maturity age for tax assisted programs –increase to age 71 from age 69  Income splitting –RPP and RRSP benefits  Qualified investments –to include most investment-grade debt and securities

28. IPP inc. IPP Administration  Feasibility report: −includes financial assessment and comprehensive overview  Plan set-up: –includes plan text, trust agreement/ insurance contract, actuarial report and certification, provincial and federal registration  Annual administration: –includes annual plan administration, provincial and federal regulatory compliance, member statement  Triennial actuarial valuation: –includes asset review, actuarial report and certification, provincial and federal filing

29. IPP inc. IPP vs. RRSP IPPRRSP SponsorEmployerIndividual ContributionsEmployer Required Individual Optional Asset adjustmentAsset top-up Contribution holiday n/a Contribution timing120 days after corporate year-end 60 days after calendar year-end Plan administrationHighly regulatedRegulated

30. IPP inc. IPP vs. RRSP IPPRRSP Plan assetsMember owned Creditor proof Individual owned InvestmentsPooled/ mutual funds, individual investments Income splittingOn payout Spousal RRSP option Early retirementPermitted – with additional funding Permitted Payout optionsLife annuity, LIF, from plan, 50% cash Life annuity, RRIF, LIF, cash

31. IPP inc. Questions?

32. IPP inc. Contact Us IPP Consulting Ltd. Actuaries and Retirement Plan Specialists 504, 1300 – 8 th Street SW Calgary, AB T2R 1B2 Telephone:(403) 228-9024 Fax:(403) 228-9086 e-mail: info@ippconsulting.cainfo@ippconsulting.ca