Designed specifically for doctors, the newly introduced Physician-Focused Pension Plan (PFPP) offers an intriguing alternative to the longstanding Individual Pension Plan (IPP). Let’s explore the similarities and differences between the two so you can make an informed decision about your retirement savings strategy.
Introducing the PFPP
The PFPP came into effect on January 1, 2022, and offers a fresh approach to retirement planning for incorporated physicians. While the IPP has long been a favourite for its substantial tax-deductible contributions and flexibility, the PFPP provides a different set of benefits.
Some physicians may prefer the alternative structure of a PFPP over an IPP depending on their goals for retirement and their risk tolerance.
Key Comparisons: IPP vs. PFPP
Both the IPP and PFPP aim to maximize retirement savings, but they differ in several key aspects:
- Participation: While the IPP allows for both a physician and their employed spouse to participate, the PFPP only extends to the physician.
- Pension Benefits: The IPP offers benefits adjusted for wage inflation while the PFPP lacks wage inflation adjustments.
- Retirement Flexibility: The IPP allows for early retirement at age 50 with potential for unreduced benefits from age 60. The PFPP permits early retirement from age 55, with reductions for early withdrawals.
- Longevity Risk: While IPPs are sustained entirely by the plan holder’s funds, PFPP holders benefit from reduced risk by pooling several physicians into the same pension plan.
- Inflation Protection: While the IPP offers automatic pension income increases to account for inflation, the PFPP may adjust benefits based on the plan’s financial performance, but this is not guaranteed.
- Estate and Beneficiary Benefits: The IPP ensures remaining assets are paid to the estate or named beneficiaries, with provisions for continued payments up to 15 years. The PFPP ceases payments after 10 years, with any remaining contributions benefiting other plan members.
- Investment Control: An IPP allows physicians to work with their investment advisor to tailor their portfolio. A PFPP pools contributions and makes investment decisions on behalf of all members.
Choosing between an IPP and the new PFPP depends on your circumstances and retirement goals. While the PFPP offers simplicity and pooled risk management, the IPP provides more robust benefits, flexibility, and control.
