2007 Budget - Questions and Answers - Archive
The following publications are archived and kept for historical purposes. Caution should be used when referring to these documents, as they may not reflect the law or policy currently in force. If you have any interpretative questions about the current law or policy, contact the Registered Plans Directorate by phone at (613) 954-0419. Also, see our list of current FAQs.
- Implementation of the proposed increase in the age limit
- Phased retirement - Definition
- Phased retirement - Who qualifies
- Phased retirement - Benefits
- Phased retirement - Work time
- Phased retirement - Other pension rules
- Phased retirement - When can employers offer it
- Phased retirement - Do employers have to offer it
- Phased retirement - Where to get more information
Implementation of the proposed increase in the age limit
Can an employer, issuer, or carrier implement the proposed increase in the age limit before the proposed changes to the Income Tax Act are enacted?
Yes, it is parliamentary convention that budget measures take effect as soon as a notice of Ways and Means motion is tabled in the House of Commons even though they have not yet been passed into law. As a result, employers, issuers, and carriers can amend and administer their plans in accordance with the proposed legislation. However, a taxpayer remains potentially liable to the effects of the current law in the event that the budget is not ultimately adopted.
The proposed legislation received Royal assent on June 22, 2007. Measures in Bill C-52 are now law.
Phased retirement - Definition
What is phased retirement?
The Income Tax Regulations currently prohibit employees from accruing further benefits under a defined benefit provision of a pension plan if they are currently receiving retirement benefits under a defined benefit provision of the plan or from another defined benefit plan of the employer or a related employer. Subject to certain requirements, the budget proposes to allow employees to receive pension benefits from a defined benefit plan, and to simultaneously accrue further benefits.
Phased retirement - Who qualifies
Who can qualify for phased retirement benefits?
To qualify for phased retirement benefits, employees must be at least 55 years of age and must be eligible for a pension that is not reduced because of their age, pensionable service, or a combination of both their age and pensionable service.
What phased retirement benefits can employers offer their employees?
Employers will be allowed to offer qualifying employees up to 60% of their accrued defined benefit pension. The 60% limit will be based on the amount of pension benefits (including bridging benefits) that would be paid from the plan if the employee were fully retired. As well, current rules that enable benefits to accrue for periods of absence or reduced pay will not apply to employees who receive phased retirement benefits and continue to accrue further benefits under the plan.
Will employees be required to reduce work time while receiving phased retirement benefits?
There will be no requirement that the partial pension be based on a reduction in work time, or that there be a corresponding reduction in salary. As a result, qualifying employees will be able to receive up to 60% of accrued pension benefits while continuing to work, part-time or full-time, as well as continuing to accrue benefits for that work.
Phased retirement - Other pension rules
How will other pension rules be affected by phased retirement benefits?
There will be no restrictions on when, or how often, an employee's accrued pension amount can be recalculated to take into account the employee's additional pensionable service and increased annualized earnings (if any) during a period of simultaneous benefit accrual and pension payment. Employers will not be prevented from limiting participation to specific employees under the plan terms. The prohibition against the payment of bridging benefits on a stand-alone basis will not apply for qualifying employees.
The prohibition on accruing additional benefits, while receiving pension payments, will continue to apply to designated plans as well as to persons who are connected with their employer.
Phased retirement - When can employers offer it
When will employers be able to offer phased retirement benefits to their employees?
In order to provide for an appropriate period of consultation on the technical aspects of this measure, it is proposed that 2008 be the first year of service for which an employee will be permitted to accrue benefits under a defined benefit plan while in receipt of a partial pension.
Phased retirement - Do employers have to offer it
Will all employees be able to benefit from phased retirement programs?
Since this tax measure is not mandatory, it will be up to employers to decide whether to amend the defined benefit pension plan to provide this benefit to all or some of their employees.
Phased retirement - Where to get more information
Where can I get more information about the phased retirement benefits?
More information about phased retirement benefits will be available shortly. Please check the CRA's website regularly for updates. The draft Regulations will be released by the Department of Finance in the near future.