Draft CRA newsletter offers guidance on pension annuities

  • March 26, 2019

Given the number and range of people and organizations affected by the purchase of annuity contracts under section 147.4 of the Income Tax Act, from pension administrators to plan members to annuities providers, it’s important that the Canada Revenue Agency (CRA) gets the interpretation of this section right.

To that end, the CRA has prepared a draft newsletter Respecting Registered Pension Plan Annuity Contracts, and sent it out to stakeholders for comment.

The Canadian Bar Association’s Pensions and Benefits Section says it appreciates the guidance offered by the newsletter, but has some recommendations to make it more helpful.

For starters, the newsletter should clarify what it does and does not address.

“Given the complex layers of legislation already governing annuity purchases, including whether the terms of the annuity may vary from the benefit entitlement in the pension plan, the CBA Section suggests that the newsletter include an introductory passage clearly stating that it does not address any of the regulatory and/or compliance issues that arise under provincial pension standards legislation, nor replace the terms of the pension plan under which the annuity is purchased,” it says. “This would clarify that the sole focus of the newsletter … is to provide guidance for federal ITA purposes, and that compliance with the newsletter is not necessarily compliance with provincial or federal pension standards legislation.”

The Section also recommends clarifying some of the terms used in the newsletter: for example, where it says: “the rights provided under the contract are not materially different from those provided under the RPP,” what does “not materially different” mean? The Section recommends that the CRA offer a non-exhaustive list of examples of reconfiguration of benefits that would render an annuity purchase materially different.

Likewise, the Section notes that it is unclear what is meant by “reconfiguring the benefits” when the newsletter says it will be acceptable to reduce the lifetime retirement benefits or ancillary benefits “but without further reconfiguring the benefits that would have been provided from the RPP.”

The Section also recommends that the newsletter expressly recognize that most money purchase plans will not provide a specific amount or form of lifetime pension benefit. “Including that express recognition in the newsletter would prevent confusion by money purchase plan administrators in confirming compliance with section 147.4(1) when purchasing annuities form the plan.”

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