Pension Benefits Standards Act
Budget 2016 proposes changes to the agreement powers of the Pension Benefits Standards Act (PBSA). The Government proposes to broaden the scope of its ability to enter into bilateral agreements with provinces under the PBSA, which will better allow the federal and provincial governments to work together to oversee certain pension plans. The federal government has made changes to the PBSA that will come into effect on July 1, 2016. Of particular interest is a clarification about the 10 per cent rule set out in Schedule III of the PBSR and its applicability to member choice accounts.
The Regulations provide an exemption for member choice accounts from the 10 per cent rule where investments are made to a segregated fund that complies with the 30 per cent rule (rule that restricts investment in shares that have more than 30 per cent of voting rights of the corporation attached to them). The 10 per cent rule is a concentration limit for plan investments that restrict allocation to an investment option where more than 10 per cent of the total value of plan assets is invested in a single entity or affiliated/associated entity. This means that there will no longer be a requirement to monitor investments for defined contribution pensions plans that allow members to choose their own investment options. This applies to federally regulated plans but also to any jurisdiction that has adopted the Quantitative Investment Limits set out in Schedule III of the PBSR.
30% investment restriction rule
The Budget announced that the federal government will shortly launch a public consultation on the usefulness of the 30 per cent investment restriction, which restricts pension plans from holding more than 30 per cent of the voting shares of a corporation. Eliminating the 30% rule could encourage new investment opportunities and allow pensions to contribute more directly to economic growth.
A change in the 30 per cent rule, would not only apply to federally registered pension plans, but would also affect pension plans registered in Alberta, British Columbia, Manitoba, Newfoundland and Labrador, Ontario and Saskatchewan because the pension legislation of those provinces incorporates the federal 30% rule as amended from time to time, by reference.
Pension income splitting unaffected
The budget proposes to eliminate the income splitting tax credit for couples with at least one child under the age of 18 for 2016 and subsequent taxation years. Pension income splitting will not be affected.
Enhancing the Canada Pension Plan
In December 2015, the federal Government began discussions on enhancing the Canada Pension Plan with the provinces and territories, with the goal of being able to make a collective decision before the end of 2016. In the coming months, the government will launch consultations to give Canadians an opportunity to share their views on enhancing the Canada Pension Plan.
Restoring eligibility for Old Age Security Benefits
The Budget proposes to cancel the provisions of the Old Age Security Act that increase the age of eligibility for Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits in Canada. OAS will become available again at age 65 instead of age 67 and Allowance benefits will be available from age 60 instead of age 62. Also, higher GIS and allowance benefits will be provided in certain circumstances. The federal government also states that it is committed to ensuring that OAS and GIS keep pace with the actual costs of living faced by seniors and is looking at ways to develop a new Seniors Price Index.
