A “robin hood” style pension plan creates significant deductibles for clients and increases revenue for advisors, according to its creator.
The brainchild of Jean-Pierre A. Laporte, CEO of Integris Pension Management Corp, the company’s Personal Pension Plans (PPPs) aim to bring the rules of traditional gold-plated pension funds, like the ones teachers enjoy, down to the level of small business owners.
Laporte said that because pension laws are more generous than those for RRSPs, people invested in the latter are missing out on a windfall in retirement.
With a PPP, he said: “You pay less taxes because there are way more deductions and you have more money to retire. So you win on both fronts. At the core, that is the basic equation.”
The reason no one else has come up with such a plan is, he says, because it’s “so damn complicated”. He said: “If advisors just bothered to take the time to learn about it, they could save clients hundreds of thousands of dollars and have more assets under management, and make more money. But they’re just like, ugh, do I have to learn this?”
Laporte, a pension lawyer, dedicated three years of his career to fine-tune the PPPs and it’s been a registered plan with Canada Revenue Agency for four years, with about 200 families across Canada signed up.
After the government tightened tax rules on passive income for small businesses in Tuesday’s budget, many owners may now be forced to stop thinking of their business as an investment vehicle or a pension plan and look at moving money into approved savings plans like RRSPs, TSFAs or IPPs.
Laporte said that PPPs sit at the very apex of the hierarchy of tax-assisted retirement plans on the income side and said business owners should at least be aware of what the plan can offer. “Ignorance gets very expensive,” he said.
He also believes that many business owners mistakenly view the value of their company as a pension pot when they decide to sell-up, only to realise too late that the remaining assets are not worth as much without them as they had thought.
To illustrate the value of a PPP, he gives an example of how it can save a family business, with the children also working for the company, a significant sum.
He said: “Because they are taking salaries, they can be added to the parents’ pension plan, turning it into a family pension plan. Should the parents decide to retire early, and then pass away, it is unlike the RRSP rules, where you have what is called a deemed disposition and a massive tax hit.
“With a pension plan, there is no deemed disposition; the money earmarked to pay your parents is deemed surplus because there is no one to pay it to. The surplus gets trapped in the PPP and now those funds that would have been taxed are available to fund the pension of the kids who are also plan members.
“So you end up with an inter-generational wealth transfer without any tax, and without probate fees. So not only does the Fed not touch your money, the province doesn’t touch your money. It could be millions of dollars, just that one thing alone, and it’s just one of 15 advantages that we have over an RRSP. It’s mindboggling.”
Laporte also cites the example of a 48-year-old doctor, earning $150,000 from his medical corporation, the rest in dividends, who wants to retire at 71. He says that by upgrading to a PPP, Integris can add $1.3 million to his retirement kitty above what the RRSP can offer. This does not even factor in extra available tax deductions, including investment management fees, which cannot be claimed with an RRSP.
Advisors, Laporte said, can use PPPs as a great asset-gathering tool, allowing them to consolidate clients’ existing RRSPs and roll them into the plan on a tax-free basis.
He said: “Advisors can gather lots of extra resources and assets into the PPP, creating more assets under management and more revenues for the advisor. It also creates more deductibles for the client so both parties are winning.”
He added that once an advisor dazzles a client with the savings he can make them, more assets often come their way. “I’ve had advisors say they have turned the PPP into a $4-5 million ticket of new assets under management.”