Advantages of simplified pension plans (SIPP)

An SIPP combines some the advantages of a group RRSP and a deferred profit sharing plan (DPSP) while offering the protection of a supplemental pension plan. Both the employer and the plan member benefits from an SIPP.

The member:

  • can determine the additional voluntary contribution he or she will make to the plan every year in addition to the member contribution set by the employer, if any.
  • can choose to distribute his or her savings among different investments offered by the financial institution.
  • can withdraw the funds in his or her not locked-in account at any time, with a few exceptions.
  • can participate in a Home Buyers Plan (HBP) or a Lifelong Learning Plan (LLP) by transferring the funds from his or her not locked-in account to an RRSP.

The employer retains important powers:

  • The employer chooses the financial institution that offers a product that meets its requirements.
  • The employer also decides the eligibility and membership requirements, the contribution rate, the locking-in or not locking-in of member contributions and the conditions for withdrawing from the plan.

For an employer, an SIPP:

  • is as easy to set up and manage as a group RRSP but offers the advantages of a supplemental pension plan
  • makes it possible for the employer to make a supplemental contribution
  • offers tax advantages. Unlike a group RRSP, an SIPP will reduce the employer's contributions to several government programs

Example

In 2019, an employer with a total payroll of $2 100 000 makes an annual contribution of $1000 per employee having a base salary of $35 000. With an SIPP, the employer can save $118.08 in payroll taxes for each employee. Those savings would not be possible with a group RRSP.

Government program Savings in payroll taxes
Payroll Tax Savings by Government Program
Employment insurance Note 1 $17.50
CNESST (contribution rate of 1.79%) $17.90
Contribution related to labour standards $0.70
Health Services Fund $19.12
Québec Pension Plan $55.50
Québec Parental Insurance Plan Note 1 $7.36
Total
$118.08

Note 1: In some cases, contributions to a group RRSP are not subject to employment insurance or the Québec Parental Insurance Plan.


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