What is an individual pension plan (IPP)?
A high‑level overview of individual pension plans (IPPs), who they can work for, and how they fit into retirement planning for incorporated Canadians.
Updated 
6 min. read
For many Canadians, retirement saving starts, and sometimes ends, with RRSPs. They’re familiar, flexible and widely understood. But as income rises and careers mature (or non-salaried compensation becomes the norm), RRSP limits can begin to feel restrictive.
That’s where the individual pension plan (IPP) enters the conversation. I P Ps aren’t new, but they remain underused and frequently misunderstood. For the right person, usually an incorporated business owner and/or professional, they can be an effective way to build tax-efficient savings and predictable retirement income in Canada.
What is an individual pension plan?
An individual pension plan (IPP) is a registered, defined benefit pension plan usually set up for one person, usually an owner-manager, through a corporation. An IPP is designed primarily for incorporated business owners and professionals who earn steady T4 income and want to save more for retirement than an RRSP allows.
Unlike an RRSP, which focuses on annual contribution limits, an individual pension plan focuses on how much income the plan is designed to pay in retirement. Annual contributions are calculated by an independent actuary based on pension rules and individual circumstances.
In simple terms:
An RRSP asks, “How much can I put in this year?”
An IPP asks, “What level of retirement income do I want to fund?”
For incorporated Canadians who have already maximized RRSP contributions, an IPP may be worth exploring as part of a broader retirement strategy.
Who might consider an individual pension plan (IPP)?
IPPs are generally considered by incorporated Canadians who:
- Earn steady T4 income from their corporation,
- Are later in their career,
- Have already maxed their RRSP contributions,
- Own a corporation with stable cash flow.
Because IPPs involve long-term funding commitments and ongoing administration, they are not appropriate for everyone.
How an individual pension plan fits into a retirement strategy: Where segregated funds come in
An IPP is not a standalone solution. It’s typically considered alongside RRSPs, TFSAs, corporate investment accounts and other estate planning strategies. Although an IPP is designed to pay a defined pension, the assets inside the plan still need to be invested. Some IPPs may use insurance-based investment solutions, such as segregated fund contracts, as part of the overall investment strategy. These contracts combine market-based investing with insurance features that may help manage risk within a pension framework.
Investment choices inside an IPP are made as part of a broader plan designed by independent professionals.
At retirement, IPP benefits are paid according to the terms of the plan. Depending on plan design and individual circumstances, some retirees may use annuity-based solutions to help convert a portion of their pension entitlement into predictable, lifetime income. Again, these decisions are typically made with the guidance of actuarial, tax and financial professionals.
BMO Insurance’s role
BMO Insurance does not design, establish or administer individual pension plans, and does not provide actuarial valuations. Our role is limited to supporting the investment component, where appropriate, as part of an IPP that has been established by the plan sponsor and their external advisors.
Independent third-party actuarial firms are responsible for:
- Determining plan design.
- Calculating contributions.
- Assessing funding requirements.
A financial advisor can help coordinate these relationships as part of the planning process.
Is an IPP right for you?
Individual pension plans are complex and involve long-term commitments. Whether an IPP is appropriate depends on personal, corporate and tax circumstances.
A conversation with your advisor, alongside independent actuarial, tax and legal professionals, can help determine whether an IPP should be considered as part of your broader retirement strategy.
Frequently asked questions about individual pension plans
Yes. Many people with IPPs still have RRSPs. However, IPP participation affects RRSP contribution room, so coordination is important. An IPP becomes the primary source for retirement income, and remaining RRSP balance supplements the IPP.
No. An individual pension plan is designed to provide a defined level of retirement income, but the outcome is not guaranteed. Funding requirements, investment performance, and plan design are meant to deliver a target retirement income, but actual results can vary. That’s why IPPs are typically set up and monitored with the help of actuarial, tax and financial professionals.
Depending on the situation, an IPP may be continued, wound up or transferred, subject to tax and pension rules. Professional advice is essential when major changes occur.
No. IPPs involve higher costs, ongoing administration and long-term commitment. They tend to work best for incorporated Canadians with predictable income and a long planning horizon.
Working with a financial advisor, you will need to engage a third-party actuarial consulting firm to determine the benefit and contribution requirements, in addition to creating the plan documents and establishing the IPP with the CRA. BMO Insurance does not provide valuations to justify or support the funding of an individual pension plan. These valuations are completed by independent third-party actuarial firms. A financial advisor can help coordinate access to appropriate service providers as part of the planning process.
Disclaimer:
Information contained in this article is general in nature and should not be construed as legal or tax advice. You are encouraged to seek the advice of other professionals such as legal and tax experts. Please consult the appropriate policy contract for details on the terms, conditions, benefits, guarantees, exclusions and limitations. The actual policy issued governs. Each policyholder’s financial circumstances are unique, and they must obtain and rely upon independent tax, accounting, legal and other advice concerning the structure of their insurance, as they deem appropriate for their particular circumstances. BMO Life Assurance Company does not provide any such advice to the policyholder or to the insurance advisor.
Any amount that is allocated to a segregated fund is invested at the risk of the policyowner and may increase or decrease in value. Any withdrawals will reduce both the Maturity Guarantee Amount and Death Benefit Guarantee Amount proportionately.
BMO Life Assurance Company is the sole issuer and guarantor of the BMO GIF individual variable insurance contract. Please consult the Information Folder (including Policy Provisions & Fund Facts) for details of BMO GIF.
Insurer: BMO Life Assurance Company
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