Regulation of state and supplementary pension schemes in Canada: overview

A Q&A guide to pensions law in Canada.

The Q&A gives a high level overview of the key practical issues including: state pensions; supplementary pensions; funding and solvency requirements; tax on pensions; business transfers; participation in pension schemes; and employer insolvency and overall scheme solvency.

The Q&A is part of the Multi-jurisdictional Guide to Pensions law. For a full list of jurisdictional Q&As visit www.practicallaw.com/pensions-mjg.

Brian Burkett and Mark Newton, Heenan Blaikie LLP
Contents

Pensions

State pensions

1. Do employers and/or employees make pension contributions to the government in your jurisdiction?

Contributions paid to the government

In every jurisdiction except Québec, employees make pension contributions to the Canada Pension Plan. Employees in Québec make pension contributions to the Québec Pension Plan. Employee contribution rates are 5.1% and 4.95% under the Québec Pension Plan and Canada Pension Plan respectively of employment earnings up to the year's maximum pensionable earnings. Employer pension contributions are at the same rate as that for the employee.

Taxation of contributions

Contributions to the Canada/Québec Pension Plan are treated on a tax deductible basis.

Monthly amount of the government pension

The Canada Pension Plan will provide beneficiaries with approximately 25% of the average pre-retirement employment earnings up to a maximum amount. The maximum monthly pension payable under the Canada and Québec Pension Plans in 2013 is CAD$1,012.50 and CAD$1,212.87, respectively.

 

Supplementary pensions

2. Is it common (or compulsory) for employers to provide access, or contribute, to supplementary pension schemes for their employees? If they do, are they:
  • Occupational (that is, linked to an employment or professional relationship between the plan member and the entity that establishes the plan)?

  • Personal (that is, not linked to an employment relationship, established and administered directly by a pension fund or a financial institution acting as pension provider, where individuals independently purchase and select material aspects of the arrangements, though the employer may make contributions).

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
3. Where supplementary schemes are provided, do these schemes provide pensions, the value of which:
  • Is linked to the employee's salary (defined benefit)?

  • Is linked to employer and/or employee contributions and investment return on those contributions (defined contribution)?

Many Canadian employers provide supplementary pension plans to employees even though this is not legally required. These plans come in two basic designs: defined benefit plans and defined contribution plans.

Linked to the employee's salary

Under a defined benefit plan, a pension's value is linked directly to an employee's salary. Defined benefit plans are decreasing in popularity among Canadian private sector employers. Defined benefit plans are prevalent in the public sector.

Linked to employer and/or employee contributions

It is increasingly common for employers to offer defined contribution plans. The value of these plans is linked to contributions made by the employer and/or employee and, more importantly, the return on investment income.

 
4. For supplementary pensions:
  • Is there a minimum period of service before workers are entitled to receive vested rights?

  • Are there any legal requirements for schemes or providers to index pensions in payment and/or revalue pension rights in deferment?

Minimum period of service

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Legal requirement to index

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 

Funding and solvency requirements

5. In relation to supplementary schemes, are these generally funded or unfunded? If funded, are there any solvency requirements on the sponsoring employer or provider?

Funded or unfunded?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Solvency requirements for funded schemes

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
6. In relation to access for members to the funds in their supplementary pension scheme:
  • To what extent can members transfer their funds to another pension scheme?

  • How do members normally take the benefit of their funds (for example, lump sums, income withdrawals (drawdown), life annuity arrangements)?

  • What are the legal restrictions upon access to the funds (for example, age)?

  • What are the common arrangements for early retirement and ill-health retirement?

  • Are dependants of deceased members entitled to receive benefits payable on the member's death? What form do these commonly take?

Member's transfer of funds

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Taking pension benefits

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Legal restrictions

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Early and ill-health retirement

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Dependants' benefits

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
7. Is there a regulatory body that oversees the operation of supplementary pension schemes? Do any other governance regimes apply to supplementary pension schemes?

Regulatory body

Regulators in each jurisdiction administer and enforce pension legislation. There is also a reciprocal agreement between pension regulators that enables them to administer the pension standards legislation of the other jurisdictions on a co-ordinated basis.

Regulatory framework

Pension plans in Canada are governed by the federal Income Tax Act (Canada) and provincial pension standards statutes. All provinces (except Prince Edward Island) have this type of legislation. There is similar federal legislation which covers federally regulated employees and employers as well as employers and employees in the three territories.

 

Tax on pensions

8. Are any tax reliefs available on contributions to supplementary pension schemes (by the employer and employees)?

Supplementary pension plans receive favourable tax treatment. All pension plans must be registered in order to operate and receive tax-favoured treatment. The income tax system is integrated in order to equalise the tax limits for defined contribution and defined benefit plans. The Income Tax Act (Canada) also prescribes contribution limits and benefit levels.

Tax relief on employer contributions

Employer pension contributions to supplementary pension schemes are generally tax deductible.

Tax relief on employee contributions

Employee pension contributions to supplementary pension schemes are generally tax deductible.

 
9. Are there any approval or registration requirements with the local tax authority where a supplementary scheme is established?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
10. What is the tax treatment of investments made by the scheme?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
11. What is the tax treatment of pension and lump sum payments made to members?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
12. Are there any other applicable tax charges on schemes?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 

Business transfers

13. Is there any legal protection of employees' pension rights on a business transfer?

Automatic transfer of pension rights

Most jurisdictions in Canada have enacted rules and regulations that set out pension rights that apply in the event of a business transfer. In particular, most jurisdictions allow for, but do not require, pensions assets and liabilities to transfer from a vendor's pension plan to a purchaser's. These rules also dictate that a new plan must recognise an employee's previous years of service for the purpose of determining both eligibility and vesting rights.

Other protection for pension rights

Pension rights accrued with the vendor employer can be preserved in various ways. In the event that the pension plan remains with the vendor, the employee can continue to retain their benefits under the previous plan. These benefits will not be paid until the individual employee retires or ends their employment with the purchasing business. At this time, the employee can ordinarily exercise several options, including moving the funds to a Registered Retirement Savings Plan or other pension plan on a tax-deferred basis. Pension rights may also be preserved through a direct transfer of the benefits to the purchaser's pension plan, subject to the terms of the purchaser's pension plan.

 

Participation in pension schemes

14. Can the following participate in a pension scheme established by a parent company in your jurisdiction:
  • Employees who are working abroad?

  • Employees of a foreign subsidiary company?

Employees working abroad

It is possible for employees who work abroad to participate in a pension scheme established by a participating company in Canada. In order to be eligible, the employee must have been a resident of Canada at one time, and must have previously worked for the Canadian participating employer in Canada.

If the employee has an employment contract with the Canadian participating employer (that is, works at a Canadian employer's US location), then there is no limit on the service that will be recognised for a defined benefit or a defined contribution pension plan.

Employees of a foreign subsidiary company

If an employee provides services to a foreign subsidiary of a Canadian participating employer, the employee will be entitled to participate in a defined benefit pension plan for a maximum of five years.

To be eligible, this employee must have been a resident of Canada at one time, and must have previously worked for the Canadian participating employer in Canada.

If the employee returns to work for the Canadian employer for at least 12 months, this will reset the count and the employee will be entitled to an additional five years if he or she returns to work for the foreign subsidiary.

An employee of a foreign subsidiary may only participate in a defined contribution pension plan with the written approval of the Canada Revenue Agency.

 

Employer insolvency and overall scheme insolvency

15. Is there any protection provided for pension scheme benefits where the sponsoring employer becomes insolvent? If so, who provides the protection, and how does this operate? If the scheme itself is underfunded, are there any funding obligations on connected or associated legal entities?

The federal Bankruptcy and Insolvency Act establishes a super priority in an insolvency situation in favour of plan members for current service contributions. This protection does not extend to provide protection to pension plan members with respect to unfunded liabilities.

*The authors wish to thank Emily Shepard and Justine Lindner for their invaluable assistance in preparing this chapter.

 

Online resources

Canadian Legal Information Institute (CanLII)

W www.canlii.org

Description. Website provided by CanLII, a non-profit organisation managed by the Federation of Law Societies. Includes statutes, regulations, court decisions and some tribunal decisions from every Canadian jurisdiction. Reproduces consolidations of statutes and regulations as published by official printers. Available in French and English.

Department of Justice Canada Laws website

W http://laws-lois.justice.gc.ca/eng/

Description. Online source of consolidated Acts and regulations of Canada. Updated weekly. Available in French and English.



Contributor profiles

Brian W Burkett

Heenan Blaikie LLP (member of Ius Laboris)

T +1 416 360 3529
F +1 416 360 8425
E bburkett@heenan.ca
W www.heenanblaikie.com

Qualified. Ontario, Canada, 1978

Areas of practice. Collective agreement interpretation and negotiation; strategic advice; labour relations board proceedings; international labour law.

Recent transactions

  • Concentrates exclusively in the areas of management labour relations and employment law, both domestically and internationally.
  • Represents employers in collective bargaining, arbitration, labour board proceedings, human rights complaints and wrongful dismissal complaints.
  • Offers proactive strategic advice on behalf of employers and employer organisations, as well as involvement in the development and design of labour law policy, both in Canada and globally.
  • Director of and counsel to the Canadian Employers Council, which represents the interests of the Canadian employer community at the International Labour Office in Geneva, Switzerland, and in connection with the Summit of the Americas Process.

Mark Newton

Heenan Blaikie LLP (member of Ius Laboris)

T +1 416 643 6855
F +1 866 299 9567
E mnewton@heenan.ca
W www.heenanblaikie.com

Qualified. Ontario, Canada, 1983

Areas of practice. Pension and benefits law

Recent transactions

  • Practises exclusively pension and benefits law.
  • Provides proactive strategic advice to employers in respect of all aspects of pensions and benefits law, including governance, regulatory compliance, due diligence, purchase and sale agreements, bankruptcy and insolvency, pension investments, retiree benefits, litigation, and the tax-effective delivery of pensions, benefits and compensation.
  • Founding Chair of the National Pensions and Benefits Law Section of the Canadian Bar Association.

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