Spousal RRSPs and their impact on IPPs

Many Canadians are familiar with a spousal RRSP.  This is when a higher income spouse contributes to a lower income spouses RRSP. The contributing spouse receives a tax deduction while the lower income spouse becomes the annuitant of the RRSP. The main ambition of a spousal RRSP is to potentially income split in retirement.  However, there are numerous other considerations one should consider before contributing to a spousal RRSP.  We encourage clients to discuss their motivation with a knowledgeable professional before implementing one.

One such consideration is the potential impact when establishing an IPP.  Typically, when an IPP is established, the employee would purchase past service.  This entails the employee transferring RRSP assets into the IPP which allows the corporation to fund the true cost of retirement benefits.  However, the RRSP assets must come from the employees’ funds where the employee is the annuitant.  If the employee does not have sufficient assets in their RRSP they may not be able to purchase all of their past service which can have a material impact on lifetime retirement benefits available through the IPP.

If you'd like to discuss registered pension plans or individual pension plans, request a free consultation with us today.