When you’ve already started contributing to any of the pension plans in Canada, you might wonder “Are pensions protected in Canada?”. This article will answer that question. We’ll also go through some exceptions to the protection of pensions in Canada.
How are pensions protected in Canada?
The different Canadian laws determine how pensions are protected in Canada. Knowing about these laws, and which specific law applies to you and to your employer, will give you an advantage. You and your employer must also take note of some of its exceptions.
Public and Private Pension Plans
Each pension plan is established and governed by a specific law. These laws, whose provisions also outline how pensions are protected in Canada, may be divided into:
1. Laws establishing public pension plans:
- Canada Pension Plan (CPP)
- Québec Pension Plan (QPP)
2. Laws governing private or supplemental pension plans are:
- Ontario: Pension Benefits Act (PBA)
- Québec: Supplemental Pension Plans Act
- British Columbia: Pension Benefits Standards Act
- Alberta: Employment Pension Plans Act
- Manitoba: The Pension Benefits Act
Supplemental pension plans are also called “employer-sponsored pension plans”. In addition, they are also governed by the Income Tax Act and the regulations of the Canada Revenue Agency (CRA).
Find out more about these pension laws in our article about Canada’s pension legislation.
Are pensions protected from creditors in Canada?
As a general rule, pensions are protected from your creditors and from any other deductions.
For example, while salaries and wages may be seized by your creditor, your pensions are exempt under Canadian law.
Under Sections 65 (1) and (1.1) of the CPP, your CPP pension benefits cannot be:
- assigned
- charged
- attached
- anticipated
- given as security
- seized
- or be subject to execution
Similarly, Ontario’s PBA states that benefits under a private or supplemental pension plan are exempt from execution, seizure, or attachment (Section 66 (1), Ontario PBA).
Bill C-228, or the Pension Protection Act, received Royal Assent in April 2023. This new law states that in case of bankruptcy, defined pension plan members are given priority over the pension plan’s other creditors, whether secured or unsecured.
Canada’s new Pension Protection Act gives pensioners more protection in bankruptcy proceedings – but has lending & compliance implications too. Connect with McInnes Cooper’s Pensions & Benefits Team to understand the impact. https://t.co/FzbdqBKCYO
— McInnes Cooper (@mcinnescooper) June 14, 2023
To know more about this new law, speak with a lawyer in your province. If you’re based in Toronto, for example, contact a pensions & employee benefits lawyer in Ontario.
Exceptions
There are exceptions to the rule that pensions are protected in Canada.
If any of the cases below apply to you, consult with your employer and a pensions & employee benefits lawyer to know your options:
1. Double payment
While you may qualify for multiple pension plans and disability benefits from the government, any double payments may be deducted from any of these benefits.
For example, your CPP benefits may be deducted when you've received any of the following, when such would not have been given to you because of any benefits that you should have received under the CPP:
- any advance, assistance, or welfare payment from any provincial or municipal authority (Section 65 (2), CPP); or
- any payment from a disability income program (Section 65 (3), CPP)
2. Assignment to a spouse or common-law partner
Under the CPP, a portion of your retirement pension may be assigned to your spouse or your common-law partner (Section 65.1 (1), CPP).
This applies in cases of:
2.1 double assignment:
- when CPP benefits are payable to both you and your spouse or common-law partner; or
- when CPP benefits are payable to you, and benefits from a provincial pension plan are payable to your spouse or common-law partner, or the other way around.
2.2 single assignment: when you're a contributor to the CPP and your spouse or common-law partner is not, and your spouse has reached 60 years old.
3. Income tax payables
Income tax arrears or unpaid income taxes, when determined by the CRA, may also be a reason for the authorities to seize your pension benefits.
If you’re working, even if you’re at retirement age or after you’ve retired, the CRA may also forcibly take your salaries or wages.
There’s a reason for this: the CRA, or the government in general, is not your typical creditor. This exempts them from the general rule that protects your pension.
When this happens, contact a lawyer who can guide through any of these options:
- proposing a re-payment plan of your income tax payables with the CRA, or
- filing for bankruptcy under a Consumer Proposal or Division II Proposal
Find out what is the tax rate on pension income in Canada and how it can be legally reduced.
4. Bank creditors
While your creditors may not go after your pension without a court order, your bank – if it’s one of your creditors – is a different matter.
If your pension is being deposited in a particular bank, and that bank is one of your creditors, it is well within its rights to deduct any debt that you owe the bank from your pension.
Try to talk to your bank about payment agreements to prevent any huge deduction from your pension. Suggest that they deduct partial payments from your pension or from any other source.
5. Equalization process
Equalization in a legal separation or divorce is the process where the court equally divides a family’s properties between both spouses. It ensures that properties legally acquired during marriage are properly assessed and distributed between the spouses.
Under the different family laws of each province in Canada, properties that may be included in the equalization process are:
- the family home, business, and car
- bank accounts
- investments
- annuity policies
- registered retirement savings plans (RRSPs)
- pensions
The court may include your pensions in the equalization process if you and your spouse legally separate or divorce when one or both of you reach retirement age. This also applies after you’ve retired.
6. Orders for spousal/child support
Deduction or diversion of pension benefits due to a support order is provided under the Garnishment, Attachment and Pension Diversion Act.
During divorce or legal separation, the court may order you to support your spouse, or your common-law partner, and/or your children through support payments.
This court order is called spousal support and/or child support order. Written agreement that you and your spouse have both signed may also be considered as a support order.
If you’re bound by a support order but you have not paid, the order may be enforced by the provincial or territorial Maintenance Enforcement Program.
The Program will send a notice to your employer, pensions provider, or any other income source to deduct support payments before remitting the net pay to you.
To know more about how pensions are protected in Canada, consult with a pensions & employee benefits lawyer in Canada as ranked by Lexpert.