Taking charge of your retirement with a personal pension plan

Many of us dream of the day we can retire, but saving money for it can be tricky. Could you be doing more to build your retirement nest egg faster? Here's some advice.

Taking charge of your retirement with a personal pension plan

Many Canadians have a hard time saving enough for retirement. That can be even trickier for those who are self-employed or own a business because they don’t have a set pension plan. For those professionals, a Personal Pension Plan may be a useful option.

How does a personal pension plan work?

A Personal Pension Plan is a registered retirement fund available in Canada.

  • It combines a defined benefit plan, a defined contribution plan, and an additional voluntary contribution sub account.
  • What's more, it gives the member complete control over how much money goes in every month, so you have more planning opportunities than you’d have under a set plan.
  • Plan members can switch each year between defined benefit and defined contribution accrual – depending on their needs at any given time – and be involved in the investment decisions.
  • If you’d rather not be involved, you can allow your money manager make those calls for you.

Who is it right for?

Personal Pension Plans are designed for business owners and incorporated professionals, such as doctors or lawyers.

  • Someone who is self-employed but not incorporated wouldn’t be eligible.
  • This type of pension plan isn’t ideal for someone who needs cash immediately, since under pension laws the money you deposit into a Personal Pension Plan can’t be accessed until you turn 55.

Tax advantages

You can make bigger contributions to a Personal Pension Plan than you could under a Registered Retirement Savings Plan, which can help you save more for retirement and also compound tax-deferred income.

  • You also get more deductions than under a regular RRSP, with options like being able to buy back past service and claim an additional tax contribution, or deducting all investment management fees.

Fees

You would typically pay a financial advisor a fee to manage a Personal Pension Plan, much like you would for them to manage an RRSP.

  • In Canada, the company administering the plan would also claim an administration fee, which is tax deductible and fixed as a percentage of assets.

Deciding if a personal pension plan is right for you

Personal Pension Plans can be an attractive alternative for incorporated professionals looking to save while easing some of their tax burden. Anyone wishing to make use of this investment vehicle should be aware of the rules and make sure they make sense for them.

Smart Tip provided by The Financial Pipeline. Founded in 1996 by a group of portfolio managers, The Financial Pipeline is dedicated to providing financial knowledge and education to anyone and everyone with even a passing interest in finance. Our motto, “Financial Information For the Rest of Us,” speaks for itself.

The material on this website is provided for entertainment, informational and educational purposes only and should never act as a substitute to the advice of an applicable professional. Use of this website is subject to our terms of use and privacy policy.
Close menu