Canadian physicians now have access to high-quality registered pension plans. The Canadian Physicians’ Pension Plan (CPPP) is a physician-led organization that seeks to fill the gap left by medical associations and financial institutions, says Dr. Vu Kiet Tran, president of the pension plan.
Canadian physicians now have access to high-quality registered pension plans. The Canadian Physicians’ Pension Plan (CPPP) is a physician-led organization that seeks to fill the gap left by medical associations and financial institutions, says Dr. Vu Kiet Tran, president of the pension plan.
For over a century, because doctors were independent professionals and not employees of the province, they did not qualify to participate in a pension plan, he said. However, starting in the late 1990s until the early 2000s, provinces gave doctors the right to incorporate a Medicine Professional Corporation (MPC). Those who did so were finally allowed to enjoy the benefits of being in a true registered pension plan that provided a stable, predictable, reliable retirement solution.
Unfortunately, until 2014 it was slightly more tax-effective to pay some corporate tax and distribute retained earnings in the form of dividends instead of paying a salary. Relying on this accounting advice, large numbers of physicians opted for a dividends-only approach to take cash out of their MPC for daily living and thus shunned T4 income (e.g., salaries and bonuses), said Tran.
January 1, 2014, the tax pendulum swung back in favour of some level of salary and those who adopted this approach were now able to make contributions to a registered pension plan. Unfortunately, no medical associations offered a true pension solution for its membership, said Jean-Pierre Laporte, a pension solutions consultant and CEO of Integris Pension Management Corporation. However, the legal mechanism used for the CPPP “is quite simple. Each MPC sets up a personal pension plan (PPP) that is registered independently with the Canada Revenue Agency. Each such PPP can then join the CPPP and enjoy economies of scale in terms of investment management fees and the progressive elimination of any annual administration fees.”
He said Dr. Tran had been dreaming for years and years about having a pension. He could not understand why physicians in Canada did not have pension plans although nurses did.
“About two years ago, he was introduced to me and I said, ‘What do you mean you can't have a pension? Of course, you can have a pension plan’.” Laporte explained the process of setting up a medical professional corporation which could be used to set up a personal pension plan,” he said.
Under this plan, his company would contribute to the plan which would be a defined benefit pension.
Dr. Tran was “so excited” he wanted to know if this could be used for physicians across Canada and the CPPP. Laporte said this could be done as a multi-employer pension plan or as a federation of personal pensions. Using the personal pension plan approach, the federation was created in 2021. One of the benefits of this is because defined benefit pension registered savings plan limits are used, up to quadruple the amount of tax deductions can be claimed which is ”way beyond what's possible under an RRSP (registered retirement savings plan.”
As well, investment management fees can written off which cannot be done with an RSP if money is borrowed to contribute to the plan. The interest is tax deductible for the professional corporation.
There is also the option to accelerate pre-funding of early retirement, similar to what is available to teachers in their plans. And if the doctor employs his spouse or children, they can join and contribute to the plan.
Laporte said this is a viable option for anyone who incorporates their business. “We want to see this expand beyond medical professionals to all professionals,” he said.
And the time is right for this type of plan for physicians. “Given their high rate of burnout and its link to financial stress, physicians can no longer neglect their own personal financial management. What we were told in the past by our financial advisors or accountants about retirement planning no longer serves them well in the current tax environment,” he said.
