Skip to main content

Individual Pension Plan (IPP) in Canada: A Guide for Owner-Managers

Updated

An individual pension plan (IPP) is a defined benefit pension plan that a corporation sets up for its owner-manager, and sometimes family members who work in the business. This page explains how it works and what to weigh against an RRSP. It is part of the workplace pensions hub.

What an IPP is

An IPP is a registered defined benefit pension plan with fewer than four members, at least one of them related to a participating employer, such as an owner-manager of the corporation that sponsors it; after the year the member turns 71 it must pay at least the IPP minimum amount, a prescribed age-based factor times the plan's assets.

Because it is a registered pension plan, it needs an employer-employee relationship: the CRA notes that “participation in a registered pension plan (RPP) is contingent on the existence of an employer-employee relationship.” The pension is based on the salary the corporation pays you; dividends don’t count as earnings for it.

How much it can provide

Like any registered defined benefit plan, an IPP is limited by the defined benefit limit: $3,932.22 of yearly pension per year of service for 2026.

At a benefit rate of 2% of salary per year of service, the limit is reached at a salary of about $196,611; above that, a higher salary doesn’t increase the pension.

Contributions

  • The corporation contributes the amount the plan’s actuary says is needed to fund the promised pension. The CRA must approve contributions to a defined benefit plan for them to be deductible, and it requires an actuarial valuation report at least every 4 years (pension law may require one more often).
  • The cost of a fixed pension rises with age, because there are fewer years for the money to grow before it is paid, so the contribution needed for each year of pension is larger for an older member.
  • If investments fall short of the actuarial assumptions, the corporation may have to contribute more to cover the shortfall.

Past service

An IPP can credit years you were already employed by the corporation. Funding past service creates a past service pension adjustment: Buying back past service after 1989 in a defined benefit plan creates a past service pension adjustment (PSPA) that reduces your unused RRSP room; when the CRA must certify it, it generally does so only if the PSPA is no more than your unused room plus $8,000, and a larger PSPA can be certified after a qualifying withdrawal from your RRSP (taxable, designated on Form T1006) or reduced by a qualifying transfer from your RRSP to the plan. For an IPP, every PSPA has to be certified, and the amount to transfer from your RRSP to the plan is worked out first, as the amount needed for the PSPA to be certified.

Your RRSP room

If you belong to a registered pension plan or a deferred profit sharing plan, your pension adjustment (PA) for a year, shown in box 52 of your T4, reduces your RRSP deduction limit for the next year; a PA can be zero but never negative, and a pension adjustment reversal (PAR) can restore room if you leave a plan having received less than your PAs counted. With an IPP you still have RRSP room each year, but it is reduced by the IPP’s pension adjustment.

At retirement

  • The plan can pay you a pension, or buy an annuity for you.
  • After the year you turn 71, it must pay at least the IPP minimum amount (part of the rule above).
  • Moving the money out as a lump sum is limited: A lump sum from a defined benefit pension can move tax-deferred only by direct transfer, and when it goes to an RRSP, RRIF, PRPP, SPP or a money purchase plan, only up to a limit set by the Income Tax Act; any part above the limit is taxable income in the year (an excess sent to an RRSP or RRIF counts as an RRSP contribution, deductible only within your RRSP deduction limit). If the plan is subject to pension standards law, the part within the limit goes to a locked-in account; Ontario, for example, lets an IPP elect to be exempt from its Pension Benefits Act.
  • Pension payments are taxable income to you.

Costs and trade-offs

  • Set-up and running costs: actuarial work, plan documents, registration with the CRA and the pension regulator, annual filings and valuations. Get quotes before deciding.
  • Locked in: IPP money can’t be withdrawn freely like an RRSP.
  • Commitment: the corporation has to keep funding the promised pension, including any shortfall, and winding the plan up has its own costs.
  • Salary needed: the pension is based on salary, so the corporation pays you a salary (with CPP contributions) rather than only dividends.

Sources

The figures and rules on this page come from these sources, last checked against them between August 29, 2026 and September 30, 2026. How we check facts.