Legislated protection of retirement savings from creditors

Jurisdictions with protection of pensions and retirement plans

Tim Mitchell
Question: I heard some jurisdictions have legislated protection for retirement savings and pension plans from creditors. Is this likely to happen everywhere in Canada?

Answer: The issue of creditors’ access to their debtors’ retirement funds has been under study in a number of jurisdictions and two broad concerns have been raised over the existing circumstances. In general, pensions and insurance-based retirement plans have been protected against seizure under provincial insurance and provincial and federal pension benefits legislation, while RRSPs and other deferred income plans were not. This distinction was seen as unfair to small business owners and those employees whose employers did not offer pension plans. In addition, concern was expressed over the potential for retirees whose plans were unprotected to be left with no means of financial support upon their retirement.

The issue was addressed in 1998 by the Civil Section of the Uniform Law Conference of Canada. This organization, which identifies areas of provincial and territorial law that could benefit from harmonization, proposed uniform legislation in 1999. The uniform Registered Plan (Retirement Income) Exemption Act was intended to protect the contents of registered retirement income plans from seizure under any legal process. It did not exempt individual withdrawals or payments out of such plans nor did it exempt other plans allowing for tax deferral (Registered Education Saving Plans (RESPs) or home purchase plans). Its overriding purpose was to protect adequate retirement funds for the plan holder.

In 2002, the federal government addressed the issue from the perspective of bankruptcy and insolvency. A task force issued a report recommending RRSPs be exempt from seizure under the Bankrupcty and Insolvency Act.

Action on the identified inequities has been slow and unsteady, but some has taken place. The uniform legislation was enacted and came into force in Saskatchewan in 2003. In 2005, the federal government tabled a bill that provided that property in a registered retirement savings plan or a registered retirement income fund was not divisible amongst the creditors of a bankrupt, subject to certain conditions and exceptions. It protected against abuse by capping the amount of the exemption by making contributions within 12 months of the bankruptcy available to creditors and requiring that the exempted amount be locked in, until rolled over into a retirement income fund, annuity or similar product. In 2006, Newfoundland and Labrador amended the Judgment Enforcement Act by adding a new provision exempting registered plans (RRSPs, Deferred Profit Sharing Plans and Registered Retirement Income Funds), including current obligations or future obligations under the plans, from the enforcement process. The new provision came into force April 5.

Manitoba enacted the Registered Retirement Savings Protection Act in 2006. It was proclaimed in force on Nov. 1, 2007.

Other provinces have not yet moved to reform the law in this area. The British Columbia branch of the Canadian Bar Association has been a strong advocate for the enactment of the uniform legislation in B.C., but has not yet succeeded in persuading the legislature in that province to act. A private member’s bill was given first reading in the Ontario legislature in 2003, but appears to have gone no further. In a 2002 consultation memorandum, Creditor Access to Future Income Plans, the Alberta Law Reform Institute recommended legislation in this area, but none has yet been enacted.

While it does seem likely that most, if not all of the provinces, will legislate some type of protection, it also seems clear that the uniformity hoped for by the Uniform Law Conference is not to be.

Tim Mitchell is a partner with Laird Armstrong in Calgary who practices employment and labour law. He can be reached at [email protected] or (403) 233-0050.

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