Individual Pension Plans (IPPs): A Critical Tool for Physicians Amid HOOPP’s Expansion

The announcement that the Healthcare of Ontario Pension Plan (HOOPP) will become available to incorporated physicians marks a significant shift in retirement planning for Ontario’s medical professionals. James Bradshaw’s article in The Globe and Mail (December 10, 2024) captures the excitement surrounding this development, which now extends a defined-benefit pension option to tens of thousands of doctors and their staff. While HOOPP is an appealing option for many, particularly younger physicians, it isn’t a one-size-fits-all solution. Individual Pension Plans (IPPs) remain a powerful and flexible retirement tool, especially for established physicians or those seeking greater financial control.

The Limitations of HOOPP for Established Physicians

HOOPP’s benefits hinge on its ability to deliver secure, predictable retirement income based on a member’s highest five consecutive years of income. For younger physicians with decades ahead to accrue contributions and maximize benefits, HOOPP may serve as a potential alternative. However, the benefits of opting for HOOPP as a younger physician should be evaluated by comparing and understanding how an IPP might fit into their overall retirement planning strategy. Each option has unique advantages and limitations that align differently with individual goals and career stages.

For physicians approaching retirement, the window to build substantial savings through HOOPP is significantly narrower. As highlighted by James Bradshaw in his Globe and Mail article, older doctors may find limited opportunity to generate meaningful benefits from HOOPP given the plan’s reliance on contributions and income over time. This limitation makes exploring alternatives like IPPs essential for those in the later stages of their careers. IPPs offer tailored strategies, including retroactive contributions and flexibility, to close any retirement savings gaps.

IPP Advantages: A Flexible Alternative

1. Past Service Contributions: A Catch-Up Opportunity

One of the most significant advantages of an IPP is the ability to purchase past service credits. This allows physicians to make retroactive contributions for years of prior income, creating substantial tax-deductible savings and enabling them to catch up on retirement planning. Unlike HOOPP, which does not permit such retroactive contributions, IPPs provide a valuable tool for those who have already built significant wealth within their medical professional corporation (MPC).

2. Enhanced Contribution Limits

For high-income physicians, IPPs allow contributions that far exceed those permitted by Registered Retirement Savings Plans (RRSPs) or HOOPP. These larger contributions can significantly boost retirement savings while offering immediate tax relief to the physician’s corporation.

3. Flexibility and Control

IPPs offer unparalleled flexibility, allowing physicians to adjust contributions based on their financial circumstances. Investment decisions can be tailored to individual goals and risk tolerance, unlike HOOPP’s centrally managed investments. This control makes IPPs particularly attractive for physicians who want a customized approach to retirement planning.

4. Staff Pension Alternatives

While IPPs technically allow for staff or key employees' inclusion, it is often not the most practical or advisable choice due to the long-term liabilities they create. Instead, physicians can consider group retirement savings plans (Group RRSPs) or deferred profit-sharing plans (DPSPs) to provide staff with retirement benefits while minimizing future liabilities. Alternatively, the MPC could participate in a larger pension plan, such as HOOPP, for staff as a robust alternative to a Group RRSP or DPSP. This approach balances the need to support employees with managing the physician's financial risks and obligations.

Innovative Planning: Combining HOOPP and IPPs

For physicians considering HOOPP but concerned about its limitations, creative strategies can ensure they maximize the benefits of both plans.

1. Dual MPC Structures

Physicians with staff may benefit from operating two MPCs: one dedicated to their personal practice and another employing staff. This arrangement allows the physicians to use an IPP for their own retirement savings while offering HOOPP to employees. For practices with nurses, administrative professionals, or other staff, this dual approach balances individual and team benefits.

2. HOOPP as a Recruitment Tool

HOOPP’s strong employer contribution match (for every $1 contributed by employees, the employer contributes $1.26) can make it an attractive offering for staff recruitment and retention. Smaller practices, often competing with hospitals and larger institutions for talent, may find this feature particularly advantageous.

HOOPP and IPPs: Key Differences

Physicians deciding between HOOPP and an IPP—or a combination of the two—should consider the following factors:

• Eligibility and Scope: HOOPP is limited to Ontario and structured for stability. IPPs are available nationwide and offer more flexible options, including estate planning, terminal funding, and creditor protection.
• Control Over Investments: While HOOPP’s investments are centrally managed, IPPs allow for tailored investment strategies through chosen advisors.
• Contribution Flexibility: IPPs offer significant flexibility in terms of contribution timing, allowing physicians to align pension funding with their broader financial and compensation planning goals. This flexibility supports strategic decisions, such as adjusting contributions to manage cash flow, optimizing T4 income for pensionable earnings, or taking dividends periodically to address financial priorities. Unlike HOOPP, where contributions are fixed and predetermined, IPPs enable a dynamic approach to retirement planning that can adapt to a physician’s evolving financial situation and objectives.
• Past Service Opportunities: Only IPPs allow for retroactive contributions, offering a significant advantage for mid-to-late-career professionals.
• Inflation Protection: HOOPP automatically adjusts for inflation, a feature not inherent to IPPs but achievable through careful planning.

The Role of Financial Expertise

James Bradshaw’s article in The Globe and Mail highlights the excitement surrounding HOOPP’s expansion, with some physicians seeing it as a valuable new option for retirement planning. While HOOPP offers potential advantages, particularly for younger physicians, with time to accrue benefits, it is not without its limitations. The description of HOOPP as “the wave of the future” underscores its appeal but does not diminish the enduring value of Individual Pension Plans (IPPs), which have long been a trusted and effective solution for retirement planning.

IPPs remain an unparalleled option for physicians seeking flexibility, control, and the ability to tailor contributions to their unique financial situations. With features like past service contributions, greater control over investment strategies, and robust estate planning opportunities, IPPs often address needs that HOOPP cannot. This makes them particularly relevant for established physicians or those with high incomes and complex financial goals.

Ultimately, the choice between HOOPP, an IPP, or a combination of both depends on individual circumstances, including age, career stage, financial priorities, and practice structure. A balanced approach—leveraging HOOPP for staff or long-term planning while utilizing an IPP for its flexibility and tax advantages—can create a comprehensive retirement strategy.

Engaging with a financial expert ensures that physicians can evaluate these options holistically, balancing the benefits of a defined-benefit plan like HOOPP with the proven advantages of an IPP. By understanding both traditional and emerging solutions, physicians can make informed decisions to secure their financial futures and provide valuable retirement benefits for their staff, enhancing employee satisfaction and retention.

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