36 - Individual Pension Plans with Nick Giovannetti

Physician Empowerment

Jan 30 2024 • 42 mins

Dr. Wing Lim hosts Physician Empowerment Masterclass Faculty Member and Certified Financial Planner Nick Giovannetti on the show today. Wing and Nick talk about Individual Pension Plans, or IPPs, breaking down how they work, who qualifies, and what sorts of benefits they provide for physicians. Nick has a wealth of knowledge about CPPs, RRSPs, and IPPs that he shares in this episode.

Nick Giovannetti explains that IPPs are not a new financial tool, they’ve been around for over thirty years in Canada. But RRSPs have been around longer and are less complicated than IPPs to administer. There are more complex forms and filings to fill out for the CRA where IPPs are concerned and Nick says the lack of awareness about IPPs and the fear associated with the complexity prevents some accountants and planners from informing their clients about the IPP benefits. So Wing and Nick dive into exactly what an IPP is and how you can best benefit from it. They cover everything from contribution limits and family member beneficiaries to buyback and defined contribution versus defined benefit pension plans. This episode gives an overview of why Individual Pension Plans are worth exploring.

About Nick Giovannetti:

Nick is a Certified Financial Planner® with a fully Integrated Wealth Planning Team. His approach to financial planning centers around a deep understanding of clients' goals and objectives, fostering long-term relationships built on trust and transparency.

Nick is one of Physician Empowerment’s professional Masterclass Faculty members.

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Resources mentioned in this episode:

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Physician Empowerment:

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Transcript

Dr. Kevin Mailo: [00:00:01] Hi, I'm Doctor Kevin Mailo, one of the co-hosts of the Physician Empowerment podcast. At Physician Empowerment we're dedicated to improving the lives of Canadian physicians personally, professionally, and financially. If you're loving what you're listening to, let us know! We always want to hear your feedback. Connect with us. If you want to go further, we've got outstanding programing both in person and online so look us up. But regardless, we hope you really enjoy this episode.

Dr. Kevin Mailo: [00:00:35] Hi everyone, so glad to have you out tonight for another webinar featuring the topic of IPPs, Individualized Pension Plans, which were in fact established by the federal government back in the 90s. They were not very well known until last 5 or 10 years when they've started to take off. But there are a lot of ins and outs to using these properly, and they have certain advantages over RRSPs that incorporated professionals really need to be taking a close look at. So to go on this deep dive, well, I shouldn't say it's that deep a dive, the deep dive is going to come with the masterclass. So if anybody's interested in that, do reach out to me and we'd be happy to talk further about having you join the masterclass, because this topic is dense. So Wing is going to take us through it tonight, and he's going to do it with one of our masterclass faculty, Nick Giovannetti. And Nick is an Integrated Wealth Planning Specialist, holds a lot of designations, and he and our other masterclass faculty member, Simon Wong, have done a ton of outstanding teaching on topics like this. Because you want to know what it is you're you're using when it comes to wealth creation and advanced tax planning. That's where these topics are so, so powerful to cover, like we're going to do. So again, if you have questions, you're interested, reach out to us. But let me take it from there, Wing, and hand it off to you. If you want to go ahead and introduce Nick to everybody.

Dr. Wing Lim: [00:02:08] Sure. So good to see everybody and hear everybody's voices later. And yeah, this is very exciting episode in December this year. And we thought we'll wrap up the year by something that is really important. And that's about the RRSP, IPP, and the pension world. And like we said in the intro on social media, we're going to unpack this mystery box. So our guest today for our fireside chat is Nick. And Nick has a lot of designations. And he's actually also a multi-talented Renaissance man, I guess, he was previously an international recording artist. You might want to explore that on the different dimension of him. And we just talked about one of his designation is about cash flow personalities. Right? And we'll probably do an episode on that, definitely will be a lot of fun. But today we're going to talk about this project, sorry, this platform. There's RRSP that everybody probably heard about and some people do RRSP, some people don't believe in RRSP. Right. But then there's IPP pension world. So Nick, maybe you should walk us through, when we talk about this, you said you got to bring in CPP too, so may as well bring in CPP, RRSP, IPP. So walk us through a little bit of a history lesson and how it's pertaining to incorporated professionals.

Nick Giovannetti: [00:03:33] For sure, yeah, thanks for having me, everyone. Like Kevin had mentioned, you know, the Individual Pension Plan, it's not a new financial tool. It's actually been around for over 30 years here in Canada. And as we know, the RRSP or the Registered Retirement Savings Plan has has been around even longer than that. It's been around since the 50s, and it was actually something introduced by the Canadian Medical Association because physicians even back then, yeah, physicians even back then were saying--

Dr. Wing Lim: [00:04:02] -- one for us--

Nick Giovannetti: [00:04:04] -- hey, we need a retirement vehicle. We need something tax sheltered. They'd done a lot of research back then, and to them it made sense to say, hey, where can I put money now, get some tax relief today, invest and grow that pot of money in a tax sheltered environment? And then I can strategically, you know, pull it out in the future and give myself predictable and secure income, something that I can count on in the future. So that's really what happened in the early 90s, was that small/medium business owners, they wanted pension plans. You know, a lot of people look at especially medical professionals around the hospital, how many of your coworkers and colleagues in the hospital have pension plans? And that's something that I think a lot of physicians look at and say, what if I could have that? What if I could even just contact the Healthcare of Ontario or OMERS or Teachers Pension and say, hey, can I just contribute to this? Can I become a plan member? And then I can also have a defined benefit pension in the future.

Nick Giovannetti: [00:05:07] So physicians are not alone. Business owners have been wanting that, self-employed people have been wanting that. So in the early 90s, the first ever one of one, so one person to one company pension plan was allowed by the Income Tax Act. And it's called an Individual Pension Plan. So you could be one business owner, have one pension plan, and you're the only plan member, but you can take advantage of all of the rules that all the other pension plans in Canada follow. So everything that everyone is very fond of, federal government workers, teachers, firefighters, police, you can benefit from those same retirement savings rules. So from contribution limits to tax deductions to predictable guaranteed income in the future, you can create your own. And it's been around a long time. So if you're a physician that is incorporated, you should really look at this as part of your overall planning.

Dr. Wing Lim: [00:06:05] So how does it compare to RRSP that everybody knows?

Nick Giovannetti: [00:06:09] So there's a few key takeaways or few key differences and one would be that the RRSP happens on a personal level, and the Individual Pension Plan happens on a corporate level. So what I mean by that is if you want to participate in an RRSP, you're going to have to pull money out of your corporation, pay some tax, and then you're going to have to then contribute to an RRSP with your after tax personal income, and then hopefully get a tax refund on the personal side. Now the RRSP is also limited to a certain amount of contribution room, so I'll touch on that in a second. The Individual Pension Plan side, it works a little bit differently. So you can actually earn money to your corporation and if you have a pension plan, the corporation can right away save that money into a pension before any tax has ever happened on those dollars. Okay, so that's one of the big key advantages. So then the second one I touched on was contribution room. So Registered Retirement Savings Plans are capped to 18% of your salary that you pay yourself or bonus, so it's got to be salary or bonus, on the personal level, defined benefit pension plans can get as high as 30% of salary, which is a big difference. We get into, you know, a difference of 30 grand a year to 50 grand a year when it comes to maximum savings room. And on the pension side, because the government really treats pension plans favorably, you have a lot of additional ways you can put money in a pension plan. So I'll touch on a few of those.

Nick Giovannetti: [00:07:46] First one is, the government cares about what the rate of return in an Individual Pension Plan is, and what they want to see is a minimum 7.5% rate of return and a maximum ceiling of it's about 9.375. They want to see pension plans grow in that window, averaging every three years. And if your pension is not growing at that rate, you're actually allowed to put in more money. When we look at the RRSP, nobody cares if your RRSP grows at 7.5%. You care, but the Government of Canada is not going to let you put more money in if your investments are not performing well enough. So you got a fail safe there. And you can also do strategies like dry powder hedging, where you purposely underperform your investments so that you can put in more money. So there's some unique strategies there. I would say another one is, defined benefit pension plans your income is based on a formula. So you know, very predictably, what are you going to have as an income stream in retirement, whereas your RRSP, it's totally up to you how you want to pull the money out. Some people pull out a lot quickly, some people don't pull out enough, some people just do the minimum that the government wants to see you pull out. So there's a lot of room for error on the RRSP side, where the Individual Pension Plan can be more predictable and easier to plan around because it's been created for you by a formula. Now there's a few different, Wing, that we could dive into. But I'll punt it back to you and we'll see where we go.

Dr. Wing Lim: [00:09:28] So I guess it's a good time to talk about these formulas. Who writes these formulas? Who dictates these formulas?

Nick Giovannetti: [00:09:36] It's a great question. So it's a legal framework that goes back to when the first Income Tax Act was created. Your pension plan could be structured in a way so that you're going to have, you know, a flat benefit. So it might be I paid myself this much salary, I worked for my company this many years, I'm this certain age, so I get a flat benefit based on a formula of a couple factors like that. There's also another factor which could be career average earnings. So it doesn't matter if you paid yourself lower salary in the beginning and then you upped it later on, you know your pension could be calculated on an average. You could also do it so that it's a final or best average earnings. Or a percentage of contributions. So these formulas, when you set up and register your Individual Pension Plan, the CRA actually has a registration form. And on the form you're going to check off these boxes of how do you want that formula to be identified. And it's in the Income Tax Act as to how that calculation will be made.

Dr. Wing Lim: [00:10:41] Right. So this is way more complicated than RRSP. Right? So maybe we could just maybe help, maybe I will use a layman's way to bring everybody on the same page. So basically if you work for a big firm you have a nice pension plan. Right? And the employer and the employee are different people. But now with this IPP platform, they allow professionals or business owners to actually be the same person, that the employer/employee is the same entity, well same person, right, different entities. But to ensure that the benefactor of the pension plan gets so much dollar sometimes guaranteed and so that's why they have these elaborate formula. Right? But then who is funding it, well in our case it's the PC. So if you come to our masterclass, the whole series is called Fat PC Skinny, right? So you want to have a fat PC but you want a skinny me, but not a starving me, right? So you definitely want the money to come out, especially in the golden years, right? That you've done your hard work. And so you want the pension to come. And now is a way to efficiently fund this piggy bank called IPP. Right? And so that's why there's a lot more calculation than RRSP. So let's look at, yeah there's some difference. What about some similarity? At age, what, 71 both plans have to kind of be put an end to it. Can you elaborate on that, Nick?

Nick Giovannetti: [00:12:11] For sure, yeah. So the similarity there is that the government of Canada, so the Income Tax Act wants you to have to start pulling money out of either an RRSP or your pension plan by age 71. You can, in an RRSP, decide to pull it out earlier, and you can do so with a pension plan as well. Some pensioners I've seen start an IPP and actually turn on their pension income as early as their mid 40s. So you have a lot of flexibility there as to when you want to start drawing the money out of these accounts. But traditional retirement age in Canada is 65, and you can delay that to 71 if you want to push it off as far as possible.

Dr. Wing Lim: [00:12:55] So with IPP, you still have to do the like the RIFF and all that, right? Like there's to pull the money out there's no difference whether you have RRSP, IPP. Is there a difference the way that you pull the money out past 71?

Nick Giovannetti: [00:13:07] Yeah, that's a great question. So with an RRSP it gets converted to, you mentioned it, it's called a RIFF. It turns into a Registered Retirement Income Fund. And the government will have a calculation as to how much you have to pull out each year as you age. And you're going to be doing that through wherever it is, your money managers, your trading, what have you. You have to pull out that minimum, but you could ultimately pull out whatever you want. With an Individual Pension Plan, you actually have three different options to how you want to pull the money out. So the first option is whoever's managing your Individual Pension Plan, you're going to just instruct them and sign the form that I'm retiring from my corporation and they will ask you, how do you want to pull out the money? Do you want monthly installments based on your defined benefit formula, or do you want a one year, once a year, lump sum, boom here's my payment? So that's the first way you could. So the money manager continues managing your money. Same with a RIFF and you're just getting your distributions. Okay? The second way, if you don't want any market risk, you can actually take your defined benefit pension that you save for yourself and you could go to a life insurance company and you could actually buy something called a copycat annuity.

Nick Giovannetti: [00:14:24] So these are available even now for teachers, firefighters, police officers, doesn't matter. If you have a defined benefit pension, you can go to an insurance company and buy something called a copycat annuity. Now the word copycat means whatever your income you are guaranteed to have, so the distribution let's just say it was 200 grand a year of pension income, the annuity will guarantee you that paycheck every year for a certain chunk of whatever your investments were in that defined benefit plan. And then depending on interest rates and annuity rates, you might actually have a little extra so you'll get paid a bit of cash and you'll have this guaranteed income the rest of your life. Now, the third way is you could shut your Individual Pension Plan down entirely and go right back to RRSPs. So we call that a wind up. So you could shut it all down back to RRSPs or into a RIFF, and you're going to have a certain amount of your pension that's allowed to transfer. So it's a tax free transfer back to the old way. But generally speaking, you will have a chunk of money that is extra that can't transfer back to an RRSP. So you'd have to take that as an income the year you decided to do a wind up. But you actually have three different ways that you could collect.

Dr. Wing Lim: [00:15:47] Right. Okay. So you got more choices, more diversity, right? More versatility. That's great. Let's talk about defined benefit versus defined contribution: DB versus DC. Because as physicians we haven't heard a lot about it, we just know that most people nowadays have a defined contribution plan meaning that the company would match you. Right.? Some of you may, listeners, may be working for a big hospital. You might be in a pension plan already. So defined contribution meaning that they define how much you contribute. They did not define how much you get, which is the benefit. And way back, there's every plan is a DB plan and now who's left with these juicy DB plans indexed with inflation? Well, our Premier, our Prime Minister, a lot of politicians do, but most corporate owners they only define a contribution not define benefit. So let's talk about DB and DC in the IPP world.

Nick Giovannetti: [00:16:46] For sure, yeah. So a defined contribution pension, I think you already touched on it, Wing, the only thing defined is the amount you can contribute. And it's actually the same contribution amount to that of an RRSP which is 18% of your salary up to the maximum allowable each year. So you can put in 18% of your salary. And then when you retire, it generally just turns into a RIFF. So same as RRSPs, right? So you're going to have the choice of taking out the minimum that RIFF allows or as much as you want, but whatever you pull out of that is going to be taxable income when you pull it out. So there's nothing really more predictable about a defined contribution pension than that of an RRSP. It's just that defined contribution pensions you can contribute through your corporation, whereas an RRSP you contribute personally. Now defined benefit pension, what's defined is your benefit, the predictable guaranteed income that you're going to receive for the rest of your life. And Wing touched on it, it could be indexed to inflation, meaning that if the cost of living goes up 3%, then your pension distributions next year will go up 3%, right? That just happened with Canada Pension Plan. Everybody got a 6.5% bump to their income because inflation changed in Canada. It was a big bump to the cost of living. So everybody collecting those defined benefit Canada pension plan cheques got a nice bump. So defined benefits are formula based on what you're going to receive in the future. Defined contributions are really a corporate version of an RRSP.

Dr. Wing Lim: [00:18:30] I guess some people have a fear that if they're stuck in a DB thing, that they, if they don't have a good year, they can't contribute. Right? But you say that it's just like the RRSP, right? And if there's a year, let's say you fallen sick or you had a bad year, you took a sabbatical, and you cannot contribute that much into the IPP, would it collapse?

Nick Giovannetti: [00:18:52] That's a really great question. So it was, I believe it was the end of 2020 where if you're a connected person to your IPP, meaning I own 10% or more of the shares of the company that is sponsoring the IPP, so in most cases for a physician, it'll be your MPC sponsoring the company, you own all the shares, or hopefully you own at least more than 10%. You're what's called a connected person. You don't actually have to contribute to your IPP at all because you're a connected person to that pension. You own majority share of the company sponsoring it, or at least 10% of it. Your family members are also connected. So if you added a spouse or children, you don't have to contribute for them either. So a lot of the fear, Wing, of having to contribute to an IPP to top it up or boost it up, if you go on sabbatical you're behind, maybe you don't have the cash flow that year, a lot of those fears are now gone. If you were to have an IPP set up and you didn't own the company and somebody set that up for you, they would be liable to fund it the same way that if you worked for the hospital, teacher, firefighter, whatever, they have to top it up, right, General Motors, big union companies, they have to top up their pensions. So you have some flexibility as the owner.

Dr. Wing Lim: [00:20:08] Right. And for the years that you didn't contribute full amount, then there is buyback or catch up. Right? There's this feature?

Nick Giovannetti: [00:20:16] There is, yeah. So even if you've been incorporated let's say for 15 years and you've never had an IPP and you decide to open an IPP right now, they can do a calculation and they look at pension adjustments, your RRSP room, your your current RRSP balance, how much you paid yourself in the past and they can go back in time and say, okay, Doctor Lim, you have a catch up of 300,000 just for setting up a pension and never paying yourself salary again, but you just have, you still currently have 300 grand of room. And then you could pay yourself a salary that year, have a percentage of salary and carry forward. So you do have the ability to buy back, but it will be offset if you took care of some, if you were contributing to RRSPs. because they're going to do a pension adjustment to offset what did you put in RRSPs? What were your unused room? How well did the RRSP perform? And then that will work into the calculation of the buyback.

Dr. Wing Lim: [00:21:17] So if you have had an RRSP and you're contemplating starting IPP, so what happens to the RRSP once you start the IPP?

Nick Giovannetti: [00:21:25] So if you want to participate in the buyback, then they're going to use your RRSP balance as part of the calculation. And what will happen is, high level example, when you have 500 grand to buy back but based on the pension adjustment calculation, you have to take 250 grand from your RRSP, and it's called a qualifying transfer, it's tax free, you have to move 250 grand from your RRSP over to your pension, and then it would allow you 250 grand room to contribute. The rest of your RRSP, whatever's over and above that minimum transfer, you could leave it external, leave it as an RRSP, or you could bring it into your pension under a secondary account known as an additional voluntary contribution account.

Dr. Wing Lim: [00:22:15] Right. So there's a lot of flexibility. And then there are certain age related benefits, right? With the room, contribution room versus RRSP. So when does the gap start to widen big enough to be meaningful?

Nick Giovannetti: [00:22:30] Yeah. So, defined benefit pension plans, the formula of the matching of the salary is about 12.5% of your salary when you're 18 years old for a defined benefit plan. And RRSPs are 18%, and defined contribution plans are 18%. But by the time you're 38, the defined benefit matching curve has caught up to the 18% already. It's a little over 18% by the time you're 38. And then from the age of 38 all the way to 71, it gets as high as almost 30% of salary. So really, you'll see a lot of people heavily look at Individual Pension Plans if they're going to do the defined benefit schedule. A lot of people will heavily look at it when they reach 40.

Dr. Wing Lim: [00:23:18] Right? So 40 is kind of the turning point.

Nick Giovannetti: [00:23:21] The turning point for most, unless they have one of the combination registrations, so their pension has both types. You can have it where you have both types, a defined contribution and defined benefit. So if you registered it that way, a lot of those professionals will just start whenever they start, because you don't lose contribution room and you can just convert it over whenever it makes sense.

Dr. Wing Lim: [00:23:43] Right. So you talk about a lot of these calculations that have to be done right. And if it is not, I heard that there's very stiff penalty from CRA. Right? And so who does all this, all these calculations?

Nick Giovannetti: [00:23:59] Yeah. So when you have a pension plan it's really important to have a good team. So as part of that team you need actuaries. There's got to be an actuary or a team of actuaries that's calculating all the math behind these complex pension calculations. And there's a lot of them out there, lots of different companies doing that. So it's important that's kind of step one. You could go a step further and make sure on that team you have pension lawyers. And it's good to have pension lawyers because they can also help with a lot more of the compliance factor of your pension plan, because you will be registering it with CRA as Doctor Wing Lim pension plan, registered pension plan. So it's important to have a team that is familiar with pensions, they're able to help you manage the non-investment related factors, and then you'll have an investment team that takes care of the money. And hopefully you have an accountant and a planner that help you with the distribution and the planning side.

Dr. Wing Lim: [00:24:56] So the beneficiary of these plans, so it could be me, the doctor, the spouse. What about kids?

Nick Giovannetti: [00:25:02] Yeah. So you you can, you can absolutely name your children as beneficiaries, and you can even add children to an Individual Pension Plan if they work at all or have any level of employment with your corporation.

Dr. Wing Lim: [00:25:17] So if they're employed, not a dividend, not T5, but they have to be T4 as well, right?

Nick Giovannetti: [00:25:23] That's right, yeah.

Dr. Wing Lim: [00:25:24] Right. Then they could be part of the IPP itself. But for the beneficiary let's say after you turn 71, right, you want to take money out. So kids probably well grown up by then, so they don't, do they have to be employed by to get the benefit, they don't have to be, right?

Nick Giovannetti: [00:25:40] So if they, if you wanted to make them a beneficiary so if you passed away where would all these assets go, no, they don't have to work for your company to be a beneficiary. But if they wanted to be a plan member because you're looking for some different intergenerational wealth benefits, then at some point they would have to have an employee relationship with your company. I've seen the employment income as low as $3,500. I've seen some people hire their kids to do admin and social media work. Maybe they pay them 10, 15 grand for that. Whatever you do, they just have to be paid at least minimum wage for whatever job it is that they're doing. And they could be added with just one year of service.

Dr. Wing Lim: [00:26:23] One year of service. And this applies not just to kids, but to the spouse as well. Right?

Nick Giovannetti: [00:26:28] 100%. Yeah. So a lot of professionals and business owners will find work for their spouse to do, and then they can add their spouse to their pension plan, and the company can contribute to that spouse's pension plan. Right? Because most likely a pension plan contribution room will be quite a bit higher than that of an RRSP.

Dr. Wing Lim: [00:26:49] Right. Yeah. And so this, we talked about TOSI in other episodes. Right? Test on, Tax On Split Income. So it's pretty harsh, but IPP is just one really smart, astute and legal way that you can do the income splitting, especially in the latter days, when you're drawing money out.

Nick Giovannetti: [00:27:06] Exactly. Yeah. It's a very black and white way to get money into your spouse's hands by paying them legitimate T4 income, so salary or bonus, and saving for their retirement. And in the future you mentioned pension plans you can do income splitting on the income that comes out of it. So these are very CRA-approved registered pension plans that there's a lot of peace of mind knowing that that part of your strategy is ironclad.

Dr. Wing Lim: [00:27:37] Right. And so who are not eligible for IPPs?

Nick Giovannetti: [00:27:41] So those that wouldn't be eligible are those that are paying themselves out of their corporation dividends or capital gains. So if you're doing pipelining, capital gains stripping, and that's your only source of income out of the company, or non-eligible dividend, then those would not qualify for pension contributions.

Dr. Wing Lim: [00:28:02] So if you have done T5 all along, right, and then you have never given yourself T4, then there is no room. Is that true?

Nick Giovannetti: [00:28:10] So that means you won't have any buyback room. That's correct. Now you could change today. So you could say, because pensions are based on current year, RRSP contributions are based on previous year income, so you could decide in the year I'm going to pay myself salary this year and open a pension that year and participate in the pension that year.

Dr. Wing Lim: [00:28:31] What about if you're not incorporated? If you don't have a PC, you're sole proprietor. Can you do IPP?

Nick Giovannetti: [00:28:37] No. So you do need to have a corporation. Now another corporation could do an IPP for you. So if you worked for another clinic and they were employing you, they could register one for you, but you would now be a non-connected person. So they would have to fund that pension plan. And a lot of employers wouldn't do that because of the risk.

Dr. Wing Lim: [00:28:58] Right. Yeah. I want to point this out because there are always exceptions to the rule. Right? And so that's what because some of our listeners, they, the first five years of practice, they haven't even incorporated yet, or they say the accountants told them there's really no reason if you spend it all, then you don't need a PC. And I have a colleague, 30 years after they started the practice, the accountant still says no need for PCs, and all these benefits, these powerful strategies, don't apply to them. Right? Or my personal story, my accountant way back said, no, don't believe in T4, only give yourself T5. So the first 20 years of my practice I only got T5, zero T4. So by the time I knew about IPP, my buyback is really small amount, right? And I wish I knew, right, I wish I knew earlier. And so that's why for people who are in the early or mid part of your career, this is something to plan.

Nick Giovannetti: [00:29:52] Yeah. And I've heard all kinds of stories. And you bring up a good point because your accountant didn't only talk you out of being able to participate in your own IPP, but your accountant also doing what they did for you there, they talked you out of participating in Canada Pension Plan, because when you make the decision not to pay T4 income to open an IPP or an RRSP, you're also shutting yourself down from getting any Canada Pension Plan.

Dr. Wing Lim: [00:30:20] Now this is really interesting because a lot of accounting accountants of my vintage, right, 30 years ago, but even newer ones I'm shocked to hear as they now you invest better than CPP. Do you want to make a comment on CPP?

Nick Giovannetti: [00:30:36] Yeah, I mean, I've heard all kinds of very competent investors think that they can outperform Canada Pension Plan. Um, Canada Pension Plan is probably one of the best run pension plans in the entire world. And in order for you to compete with that, we could dive into that maybe in the masterclass or in another session, but if we wanted to calculate what you would have to earn, consistently guaranteed every year from now all the way till you pass away, to be able to recreate what Canada Pension Plan created for 6 to 7 grand a year worth of savings, it would be a very, very difficult thing for anybody to do, even an astute investor.

Dr. Wing Lim: [00:31:19] Right. So CPP is a good thing. Right? And so when you offer RRSP and IPP, you also offer CPP right?

Nick Giovannetti: [00:31:26] You do by default, you get two pensions.

Dr. Wing Lim: [00:31:28] Yeah. Now, so then let's go back further about this accountant thing. And I'm not trying to belittle or badmouth any accountants. But a lot of accountants and advisors are so against IPP or so ignorant about IPP. Why is that?

Nick Giovannetti: [00:31:46] That's such a great question. And from what I've come across, a lot of it is lack of awareness and fear. Or they're looking for something easy because it's easier for an accountant to pay a dividend. Right? There's a little more work involved if you pay T4 and you got to remit tax at source, they got to make sure they account for Canada Pension Plan, they got to do your pension adjustments, like there's reasons why it simplifies their life. And I've actually heard an accountant one time say to a physician, I was on this joint call, I don't mind paying you salary but I'm going to have to download all that work to you, Mr. and Mrs. Physician. It was the most unbelievable comment I'd ever heard. And sure enough, they asked me after the call, can you help introduce me to an accountant that would do this work for me? So it's not that big of a deal. A lot of it is very simplified. They do it for a lot of other business owners, because a lot of other business owners do have IPPs, so they have to do the salary.

Dr. Wing Lim: [00:32:48] I'm just saying that this is a few years ago, 2020 before Covid, right? I read some stats that of all the eligible people in Canada for IPP, which is like millions, only 2% were implemented, right? The market penetration is like 2%. That's abhorring right?

Nick Giovannetti: [00:33:08] Yeah. And again, a lot of that is it's lack of awareness and fear. So I've seen, I've seen what kind of benefit an accountant that is forward thinking and stays on the top of their game with pension plans, how well their clients have done and they stand out from the rest. And that's probably some of the 2%, because why would a business owner know to ask for an Individual Pension Plan if it didn't come from their accountant or their planner? And a lot of financial planners know very little to nothing about Individual Pension Plans. And where I say the fear comes from is because there is filings with CRA that need to be done. It's either done by your administration team or your planner or your accountant. And if they screw up, I've seen people wait years to get their pensions off the ground, and there's all this compliance problems and they're just not doing it properly. So again, if you're working with a team that's familiar, this stuff is like cakewalk, right? They do these things in their sleep and you get a lot of benefit. Why so many are afraid is because it is complex. It's more advanced planning. And just not everybody's prepared for that.

Dr. Wing Lim: [00:34:17] So don't just find somebody that would just wing it, just by my name. This is not a place for somebody to wing it. This is complicated stuff. It has to be done properly.

Nick Giovannetti: [00:34:28] Yeah. I've seen the big banks steer away from things that are complicated because they can't scale. So why do they push RRSPs even? It's because it's easy. You just sit with them, you meet for five minutes, you sign a form, boom. You got an RRSP, right? That's scalable. That's easy for them to administer. So even the big banks have participated in why only 2% of the eligible population are doing it because a lot of people deal with the bank.

Dr. Wing Lim: [00:34:59] Exactly. Now. So this is awesome, Nick. Final question topic is messy one. Pension world. So if we can now do our own pension plan, what about different badging together like MEPs of the world? Even our medical associations are tapping into this thing. Can you just give us a quick overview of what that is about? It's a very mysterious world.

Nick Giovannetti: [00:35:23] Yeah. I mean, there's a lot of different pension types out there. There's Individual Pension Plans, there's Multi-Employer Pension Plans, there's Joint Employer Sponsored Pension Plans, there's Specified Multi-Employer Pension Plans. So pension plans are a complex world. They're actually an entirely different section of the Income Tax Act than that of the RRSP. It's got its own section because there's so much complexity of how you can put these together. And I'm sure you'll see if you dig into this world, there's so many different ones out there. And the biggest thing that I find is that a lot of pension plans have been rolled out, and they may claim to be something that sounds great and polished, but until you know the underlying way it was registered and all those little details of how much do I contribute, does my company sponsor it or do you sponsor it? Who has control? What if I don't like how you're managing it? Can I take it and go somewhere else? Can I add my kids to this plan? So there's so many things there. What about indexing, right? What happens if there's a market correction? So there's so many things out there that you do need to make sure you're aware of. And one thing I find that most business owners and professionals want is flexibility and control. And the IPP generally checks off both those boxes.

Dr. Wing Lim: [00:36:52] Right. Because there are talks, right, because we're busy professionals just nose down, bum up, working to our bones. And so we don't have time to think about, oh, if some big brothers sisters come and create this plan, even our own association or a fragment of our administration, right, we thought then they must do a better job just because there's bigger group of people, more asset under management that the sexy term AUM. But like you say it may not be managed well. Right? So I listen to podcasts and there is a book called The Kentucky Fried Pension. And this is a guy who is a whistleblower, which is actually a paid job in the US, and he was investigating the Kentucky State Pension and how screwed up, this is like you say, the firefighters, nurses, policemen, that how not just mismanaged, but there is just hankie panky mismanaged, like funds got stolen, siphoned to Wall Street, some favorite pals, you know, who worked there and get whatever