Ottawa, October 27, 2009
Archived - Minister of Finance Modernizes Federal Pension Framework
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The Honourable Jim Flaherty, Minister of Finance, today released an important reform plan for the federal private pension legislative and regulatory framework.
"Our Government has listened carefully to Canadians," said Minister Flaherty. "We understand the value of secure and sustainable pension plans. We are proposing a balanced package of measures for the benefit of pension plan sponsors, plan members and retirees."
Today’s announcement comes out of extensive consultations with Canadians, beginning with the January release of a discussion paper, Strengthening the Legislative and Regulatory Framework for Private Pension Plans Subject to the Pension Benefits Standards Act, 1985, and including online consultations.
In March and April, Ted Menzies, Parliamentary Secretary to the Minister of Finance, chaired a series of national public and private consultation meetings across Canada to hear the views of Canadians on strengthening the framework.
The package includes measures to:
- Enhance protections for plan members.
- Reduce funding volatility for defined benefit plans.
- Make it easier for participants to negotiate changes to their pension arrangements.
- Improve the framework for defined contribution plans and for negotiated contribution plans.
- Modernize the rules for investments made by pension funds.
"These reforms will provide enhanced benefit security for workers and retirees while allowing pension plan sponsors to better manage their funding obligations as part of their overall business operations," said Minister Flaherty.
In particular, the Government plans to restrict an employer’s ability to take a contribution holiday unless a 5-per-cent funding cushion remains, change the solvency funding methodology to make it less volatile and less pro-cyclical by basing the funding requirements on a three-year average, and require employers to fully fund pension benefits on plan termination.
In addition, the Government intends to increase the pension surplus threshold under the Income Tax Act, which applies to both federally and provincially regulated defined benefit plans, to 25 per cent from 10 per cent.
The proposed changes are aimed at federally regulated private pension plans, which represent about 7 per cent of pension plans in Canada.
While some of the proposed changes can be introduced by changes to regulation, others will be implemented by legislation, which is expected to be introduced in Parliament.
Protecting seniors is a priority for the Government. In addition to these pension framework modernizations, the Government has taken action by:
- Introducing legislation to implement the results of the Canada Pension Plan (CPP) Triennial Review, concluded at the May 2009 Federal/Provincial/Territorial Finance Ministers’ Meeting, which includes a number of measures that will improve the effectiveness and resilience of the CPP while ensuring it remains affordable and fair for future generations.
- Leading a Federal/Provincial/Territorial Research Working Group on Retirement Income Adequacy, which will report to Ministers of Finance and Ministers Responsible for Pensions in December to ensure that all Canadian governments have a common understanding of the strengths and challenges facing the retirement income system in Canada.
This builds on our Government’s four-year record on seniors’ issues, which provides $1.9 billion annually in tax relief to seniors and pensioners, including:
- Increasing the Age Credit amount by $1,000 as of 2009, on top of the $1,000 increase introduced as of 2006.
- Increasing the age limit for maturing pensions and Registered Retirement Savings Plans to 71 from 69 as of 2007.
- Introducing pension income splitting as of 2007.
- Doubling the amount of income eligible for the Pension Income Credit (to $2,000 from $1,000) as of 2006.
In addition, the new Tax-Free Savings Account will provide additional tax-efficient savings opportunities for all Canadians, including seniors.
For further information, media may contact:
Office of the Minister of Finance
Department of Finance
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