What Is an IPP (Individual Pension Plan) in Canada? A Clear Guide for Business Owners

An Individual Pension Plan (IPP) is a defined benefit pension plan that your own corporation sets up and funds for you, registered with the Canada Revenue Agency under the same rules that govern a large employer's pension. Because an actuary calculates the contributions from your age and salary, an IPP usually lets an incorporated business owner over 40 shelter more each year than the RRSP limit allows, and every dollar the corporation contributes is deductible. It's built for incorporated professionals and owner-managers who pay themselves a steady T4 salary; for most other people, the RRSP does the same job with far less paperwork.

Here's what an IPP actually is, how the numbers compare to an RRSP, and who it's genuinely designed for.

How an Individual Pension Plan Works

An IPP is a registered pension plan with, typically, one member: you. Like a traditional corporate or government pension, it promises a specific income at retirement based on a formula — usually 2 percent of your average T4 salary from the corporation for each year of service. The CRA caps that accrual through its defined benefit limit, which is $3,850 per year of service for 2026 according to the CRA's registered plan limits table. In practice, salary above roughly $192,500 doesn't add anything further to the pension.

Three pieces make the structure work:

• Your corporation is the sponsor. It makes the contributions, deducts them as a business expense, and is responsible for keeping the plan funded.
• An actuary sets the contributions. A valuation every three years calculates what the plan needs to deliver the promised pension; your age, salary, and years of service drive the number.
• The money grows tax-sheltered. Investment income inside the plan isn't taxed until it's paid to you as pension income.

In Ontario, an IPP that covers only "connected persons" — generally an owner holding at least 10 percent of the corporation's shares, plus family members who work for it — is exempt from most provisions of the provincial Pension Benefits Act. The plan still registers with the CRA and follows the Income Tax Act's funding and benefit rules, which the CRA sets out for registered plan administrators. Add a non-connected member, such as a long-serving employee with no shares, and the plan also comes under the Financial Services Regulatory Authority of Ontario.

Who Is an IPP Designed For?

Not everyone qualifies, and not everyone who qualifies benefits. An IPP is generally suited to incorporated business owners, incorporated professionals (physicians, dentists, lawyers, consultants), and executives who receive T4 employment income from their own corporation.

The plan tends to work best for individuals who are:

• Incorporated — the corporation makes the contributions, so a sole proprietorship can't sponsor one.
• Over 40 — the actuarial contribution rises with age, so the advantage over an RRSP grows through your 40s, 50s, and early 60s.
• Earning a consistent T4 salary — typically $100,000 or more per year from the company, and ideally close to the CRA's pensionable maximum.
• Comfortable with a pension-style structure — predictable retirement income in exchange for less flexibility than a self-directed RRSP.

The salary point trips up more owners than any other. Dividends don't count as pensionable earnings, and they don't create RRSP room either. If your corporation pays you mostly in dividends today, the IPP conversation starts with compensation — our salary vs dividends guide walks through that trade-off for Ontario business owners. A spouse or adult child who genuinely works in the business and draws a T4 salary can be a member of the same plan, which is one reason IPPs come up often in family-run companies.

"The IPP question usually comes down to two things: are you paying yourself a real salary, and are you past 45? If both are true it's worth running the numbers — and if not, the RRSP is probably doing the job just fine." — Marc Pineault, retirement planner in London, Ontario

IPP Contributions vs. RRSP Contributions

Most Canadians know the RRSP formula: 18 percent of the prior year's earned income, up to a dollar ceiling. The CRA's RRSP dollar limit for 2026 is $33,810, which takes a salary of about $187,800 to reach. Beyond that, extra salary creates no additional room.

An IPP works differently. The contribution is whatever the actuary calculates is needed to fund the promised pension — and because there are fewer years left for the money to compound, that figure climbs with age. Typical actuarial illustrations show a member in their early 40s only slightly above the RRSP limit, a member around 50 in the low $40,000s, and a member approaching 60 at $50,000 or more per year. Your actual number depends on the plan's assumptions and your salary history, but the shape of the curve is consistent: the older you are, the wider the gap.

That matters in a country where defined benefit pensions are increasingly rare outside government. According to Statistics Canada, approximately 7 million Canadians belonged to a registered pension plan as of January 1, 2024, and the large majority of defined benefit members work in the public sector. An IPP is one of the few ways an owner-manager can build the same kind of formula-based pension for themselves.

The past service opportunity

When an IPP is first set up, the actuary can usually recognize past years of T4 employment with your corporation — as far back as 1991 — as pensionable service. Funding that past service creates a one-time deficit in the plan, and the corporation can deduct what it contributes to fill it.

There's a catch that keeps this from being a free lunch. The CRA requires a "qualifying transfer" from your existing RRSP to cover part of the past service cost before the corporation contributes the rest. Some of what you've already saved moves into the IPP; the corporation tops up the difference, either as a lump sum or spread over several years.

What happens to your RRSP room

You don't close your RRSP when an IPP starts. But the CRA's pension adjustment formula — nine times the annual benefit earned, minus $600 — means an IPP member is typically left with $600 of new RRSP room each year instead of the full 18 percent. Your existing RRSP balance stays put and keeps growing; it just stops being the main destination for new savings.

A Worked Example: Age 55, $1.2 Million Saved

Consider an incorporated professional in London, Ontario, who is 55 with $1,200,000 already set aside: $700,000 in her RRSP and $500,000 invested inside her corporation. The corporation pays her a T4 salary of $200,000 and has since she incorporated in 2010. The figures below are illustrative; a real plan would use the actuary's calculation.

Step 1 — What the RRSP allows. Eighteen percent of $200,000 is $36,000, but the 2026 CRA ceiling is $33,810. Her RRSP path shelters $33,810 per year.

Step 2 — What an IPP allows. At 55 with a salary above the pensionable maximum, an actuarial illustration might put her current-service contribution at roughly $45,000 per year — about $11,000 more than the RRSP, all of it deductible to the corporation.

Step 3 — The corporate tax effect. If her corporation's profits fall within Ontario's small business rate of 12.2 percent — the combined federal and provincial rate on the first $500,000 of active business income, per the CRA's corporation tax rates table — a $45,000 deduction reduces corporate tax by about $5,490. At the general rate of 26.5 percent, the saving is about $11,925. Either way, money that would otherwise sit in the corporation, where investment income faces a combined federal-Ontario rate of 50.17 percent, moves into a fully sheltered plan instead.

Step 4 — Past service. With 16 years of T4 history, the actuary might calculate a past service cost of, say, $400,000. The CRA would require a qualifying transfer — perhaps $250,000 — from her $700,000 RRSP into the IPP first, and the corporation would then contribute the remaining $150,000 as a deductible expense. Her total sheltered savings don't change on the day of the transfer, but the corporation has just placed $150,000 of pre-tax money into a pension it couldn't otherwise have deducted.

Step 5 — Ten years out. If the pattern holds to 65, the IPP receives roughly $110,000 more in current-service contributions than the RRSP path allowed ($11,000 × 10), plus the $150,000 past-service top-up — around $260,000 of additional pre-tax money sheltered, before any growth. Against that sit setup and administration costs that commonly run a few thousand dollars a year, plus the triennial valuation.

Whether that adds up to a better outcome depends on her retirement timeline, her plans for the corporation, and how she intends to draw income later — which is why the calculation is done on the full picture, never on the IPP alone.

Key Considerations Before Setting Up an IPP

An IPP comes with real advantages, but it isn't a set-it-and-forget-it tool. A few things worth thinking through carefully:

• Setup and administration costs. Plan documents, CRA registration, actuarial valuations every three years, annual filings, and an administrator all cost money. They're legitimate corporate expenses, but they matter more if your contribution room is only modestly above the RRSP limit.
• Less flexibility than an RRSP. RRSP money can be withdrawn at any time, with tax. IPP money is pension money — it's there to fund retirement income, not to serve as an emergency fund or a down payment.
• The funding obligation cuts both ways. If the plan's investments fall short of the actuary's assumed return, the corporation must contribute more to cover the shortfall. Many owners see that as a feature — another deduction — but it's a commitment. If investments outperform, the plan may be in surplus and contributions may have to pause.
• Consistency matters. Because the pension is funded from your T4 salary, the plan works best when corporate income is stable and the salary continues year after year.

Pension investment rules apply as well: concentration limits generally keep the plan from holding more than 10 percent of its assets in any one entity, and there are tight restrictions on owning shares of the sponsoring corporation itself.

What Happens at Retirement — and When the Business Ends

At retirement, you have a few paths. The plan can pay your pension directly, month after month, for life — the corporation simply keeps the plan open. Or the value can be transferred out, typically into a locked-in account such as a LIRA or LIF, or used to buy an annuity. The CRA caps how much can move tax-free on a transfer; any amount above the cap is taxable income in the year you receive it, so the timing of that decision deserves care.

Like an RRSP, an IPP must begin paying out by the end of the year you turn 71, and owners who also hold a large RRSP often find the pension changes how they sequence everything else. If you're weighing when to draw down registered savings before pension and government benefits start, our RRSP meltdown guide covers that window, and the RRIF withdrawal strategy guide explains how mandatory minimums interact with other income.

Two features are worth knowing about. "Terminal funding" allows the corporation to make an additional deductible contribution at retirement to improve the pension — adding inflation indexing, a bridge benefit until CPP begins, or an unreduced pension before 65. And if the corporation winds down before retirement, the plan can be terminated and the funds transferred under the same CRA rules, though the past-service and terminal-funding opportunities generally end with it. On death, a spouse normally receives a survivor pension; without a spouse, the remaining value is paid to the estate and taxed accordingly.

Is an IPP Right for You?

An Individual Pension Plan can be one of the most effective retirement savings structures available to incorporated Canadians — but it isn't the right fit for everyone. The math depends on your age, how your corporation pays you, how many years you've been incorporated, and what you plan to do with the business over the next decade.

Marc Pineault, a retirement planner in London, Ontario, works with incorporated professionals and business owners to evaluate whether an IPP belongs alongside their broader retirement plan — or whether the current RRSP approach is already doing the work. A useful first pass is to see how your existing savings project forward with the free retirement planning calculators on this site, then ask whether the extra sheltering an IPP offers would actually change the picture. If you'd like to talk it through, you can book a conversation with Marc.