Debate grows over two pension plans for business owners and whether they’re truly different

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The personal pension plan (PPP) has been marketed for the past decade as a superior alternative to the more common individual pension plan (IPP), but some industry insiders warn the sole provider of the PPP is actually enticing clients with claims of additional key features, which they say are of little value, to justify the product’s much higher fees.

The IPP was first introduced in the early 1990s to provide more flexible retirement planning options for small business owners and entrepreneurs. There are currently about 9,000 IPPs registered across Canada including roughly 600 PPPs.

Trevor Parry, tax lawyer and president of TRP Strategy Group in Ancaster, Ont., refers to the PPP and Integris Pension Management Corp.’s marketing of the product as “sophistry” – another term for misinformation.

“There is nothing proprietary” about the PPP, Mr. Parry says.

He is among several pension consultants and actuaries across Canada who say the PPP is basically an IPP utilizing “aggressive marketing” to justify significantly higher fees.

Jean-Pierre Laporte, Integris’s chief executive officer, is not surprised by the criticism.

“I know I am not a very well-liked person in the actuarial community because I make them look like people who haven’t innovated in 30 years,” he says.

Mr. Laporte says his critics are being misleading when they claim the PPP is “a marketing trick ... just an IPP with higher fees.”

The PPP offers higher overall contribution limits, expanded legal services, and a defined-contribution (DC) component that rival IPP products lack, he says.

However, Lea Koiv, principal at Lea Koiv and Associates Inc. in Toronto, says Integris is positioning the PPP against the IPP as it existed in 1991 – and that plan’s features have evolved since.

When the IPP was first established, it largely offered only a defined-benefit (DB) component, but today, “hybrid” plans that offer both DB and DC accounts are available widely, she says.

GBL Inc., Canada’s largest IPP provider, published a document on its website comparing PPPs and IPPs after discovering “a lot of misinformation” being disseminated about both products.

“We actually offer a hybrid individual pension plan here, which is the exact same as the personal pension plan,” says Navaz Cassam, president and chief actuary of GBL in Calgary, “but nobody takes it [as] it really doesn’t make sense for [clients] to pay more for something they’re not going to utilize.”

Stephen Cheng, managing director and senior consulting actuary at Westcoast Actuaries Inc. in Vancouver, likens Mr. Laporte’s sales tactics to the stereotypes of used car salesmen.

“He is trying to sell consumers on something they might never use in their lifetime,” Mr. Cheng says. “He’s promoting [the PPP] like people will need it for everyday use, like a windshield wiper, when actually it is more like some very specific safety feature that wouldn’t even be triggered unless you got in a head-on collision while driving a couple of hundred kilometers per hour.”

Debate over contribution limits and ‘holiday’

Actuaries don’t understand the structure of the PPP, Mr. Laporte says, because it allows clients to switch between the DB and DC components each year.

“In a year when you don’t want to be caught by the IPP funding rules, you would be using the money purchase [account] defined-contribution rules,” he says. “You are freezing the IPP side of things so the funding rules don’t apply.”

Switching between the features allows PPP clients to make up to $103,000 in additional contributions over and above what would be possible with an IPP, Mr. Laporte adds.

But Mr. Cheng says that’s simply not possible because IPPs or PPPs are “all subject to the same maximum funding provisions.“

“It doesn’t make sense that some pension consultants or actuaries have found the pension ‘holy grail’ to deliver so much more funding room than the others,” he adds.

Mr. Laporte also says the PPP can avoid having to pause contributions in cases of “excess surplus,” which occurs when the assets inside an IPP outperform a certain threshold, requiring what is known as a “contribution holiday.”

“That’s what happens in a classic IPP,” Mr. Laporte says, “but with us, you’d still get a contribution holiday [for the DB account, then] we can flip into the money purchase side of the plan, so we don’t have to worry.”

However, Ms. Koiv says there are “a whole bunch of administrative issues” that arise from that practice.

“It is not easy to flip out of the DC back to the DB account to get the full value back,” she says. “It is clumsy and likely expensive.”

The Canada Revenue Agency (CRA) also considers the strategy “to be a misuse” of the regulations governing IPPs, according to a March 2021 CRA newsletter. “The CRA considers this plan design to be contrary to the intent” of those rules, it says.

While the CRA made no specific reference to PPPs, Mr. Cheng says when the CRA came out with that announcement, people within the pension industry and IPP market were saying that “[Mr. Laporte] and Integris are in trouble.”

In a statement sent by e-mail, CRA spokesperson Christopher Doody says the confidentiality provisions of the Income Tax Act prevent the agency from discussing “specific details about a particular registered pension plan or pension plan design without written authorization from the plan administrator or pension promoter.”

However, he says the CRA “can confirm that designated plans are subject to the maximum funding valuation restrictions” according to section 8515 of the Income Tax Act’s regulations and that “most IPPs fall within the definition of a designated plan.”

There “may be instances” in which a plan can be exempted from funding restrictions, Mr. Doody says, but only in cases where a ministerial waiver has been granted.

Value of additional services offered

Furthermore, GBL’s Mr. Cassam says fees for the PPP “can be two or three times more than what we charge [for an IPP].”

Mr. Laporte, for his part, says that’s another misnomer in the marketplace about the PPP. Integris offers “a whole series of pension law services that you aren’t getting with an IPP,” he adds, labelling it “fiduciary oversight.”

Mr. Cassam argues the fiduciary service is really “smoke and mirrors” to an extent and “semantics” when compared to IPP administration. However, some advisors do see value in those features.

Elke Rubach, principal of Rubach Wealth Holistic Family Advisors in Toronto, says roughly 2 per cent of her clients have opted for a PPP over an IPP and the fees are justified to her if there’s value after fees.

“Pension laws are very complicated,” she adds.

Mike D’Alessandro, co-founder and partner at Park Place Financial Ltd. in Peterborough, Ont., says the PPP is becoming more popular among his clients in part due to the legal services.

“If we went to do an IPP, you get the actuarial perspective, but you don’t get the legal advice,” he says. “The nice thing with Integris is the pension lawyers are right there to give advice.”

Yet, Normand Frenette, senior consulting actuary in the wealth practice at Buck Global LLC in Montreal, says that as soon as a client understands the PPP is simply an IPP with a DC component, there’s “no more magic” to it and they move on.

“PPPs are trying to be perceived as being something new,” Mr. Frenette says, “but hopefully more people understand there’s no real difference [compared with an IPP].”

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Editor’s note: There are 9,000 IPPs in place in Canada, according to the CRA. An incorrect number was cited in a previous version of this article.