Pension Country Profile: Canada - OECD

5. CANADAPrivate pension system’s key characteristicsOccupational voluntaryOverviewOccupational pension plans may be sponsored by employers on a voluntary basis andmay or may not be established pursuant to a collective agreement between employer andemployee representatives. Both single and multi-employer plans are possible. Registered pension plans: In order to receive tax advantages, complementaryoccupational pension plans must be registered with the Canada Revenue Agency andmeet the requirements of the Income Tax Act and either the Federal Pension BenefitsStandards Act or the relevant provincial pension benefits legislation. Unregistered plans: Plans that do not meet the requirements of the Income Tax Act orthe relevant pension standards legislation are not accorded tax benefits. Other retirement savings plans, including individual and group registered retirementsavings plans (RRSPs) and employer-sponsored deferred profit sharing plans, also benefitfrom tax-deferred treatment under the Income Tax Act.Registered pension plans may be in the form of defined benefit or definedcontribution. Some hybrid plans incorporate features of both basic plan designs. Moreover,some plans offer “flexible” arrangements whereby members can purchase additionalbenefits such as indexation or early retirement.Typical plan designDefined benefit plans are the most common type of voluntary occupational plan inCanada, although defined contribution is becoming more popular in the private sector. Atypical defined benefit plan would be based on final average earnings with an accrual rateof 2% per year in the public sector and less than this in the private sector.1 Pension plansare typically integrated with Canada/Quebec pension plans (CPP/QPP) and requireemployee contributions.A common design for a defined contribution plan would have an employercontribution of approximately 5% of earnings.2CoverageEmployers may define categories of employees covered by a plan and may institutedifferent plans for different categories of employees. Discrimination on the basis of age,sex, or marital status is not permitted but employers may discriminate between high- andlow-income employees. The self-employed are not covered by registered pension plans butmay contribute to registered retirement savings plans.According to Statistics Canada, approximately 32.5% of the labour force was coveredby a registered pension plan in 2005.FeesThere are no legal rules concerning fees for registered pension plans. The termsconcerning payment of fees from the fund or by the employer are set forth in the plandocuments.174OECD PRIVATE PENSIONS OUTLOOK 2008 – ISBN 978-92-64-04438-8 – OECD 2009

5. CANADATaxationBoth contributions subject to certain limits and investment returns for the aboveschemes are tax exempt, while retirement benefit is taxed.Personal voluntaryIndividuals can save for their retirement on a voluntary basis through RegisteredRetirement Savings Plans (RRSPs). Contributions made to RRSPs as well as investmentincome in these types of accounts are tax-favoured. There are predefined limits to theamount of contributions that individuals are allowed to make to their RRSPs each year.Market informationOccupational voluntaryIn December 2007 there were 5.7 million Canadian workers participating in employerpension plans and about 4.6 million were active members of trusteed plans. The remaining1.1 million workers with employer pension plans were covered principally by insurancecompany contracts. Assets in these pension funds closed 2007 with a market valueof CAD 918 billion (USD 855 billion).Personal voluntaryIn December 2007 RRSPs managed assets worth CAD 503 billion (USD 469 billion).Reference informationKey legislation1997: Canada Pension Plan Investment Board Act (1997), http://198.103.98.49/en/showdoc/cs/C-8.3///en?page 1.1985: Pension Benefits Standards Act1966: Legislation on the Canadian Pension Plan (CPP), www.hrsdc.gc.ca/en/isp/cpp/cppinfo.shtml.1952: Old Age Security Act, http://laws.justice.gc.ca/en/O-9/index.html.Key regulatory and supervisory authoritiesHuman Resources and Social Development Canada, www.hrsdc.gc.ca/en/home.shtml.Canada Revenue Agency, www.cra-arc.gc.ca/menu-e.html.Régie des Pensions du Québec, www.rrq.gouv.qc.ca/.Revenu du Québec, ce of the Superintendent of Financial Institutions, www.osfi-bsif.gc.ca/osfi/index e.aspx?articleid 3.Key official statistical references and sources on private pensionsStatistics Canada (2008), “Quarterly Estimates of Trusteed Pension Funds”, tatcan.ca/cgi-win/cnsmcgi.pgm?Lang E&SP Action Theme&SP ID 3868.OECD, Global Pension Statistics Project, www.oecd.org/daf/pensions/gps.OECD PRIVATE PENSIONS OUTLOOK 2008 – ISBN 978-92-64-04438-8 – OECD 2009175

5. CANADAStatistics Canada (2008), “Preliminary Results of the Pension Satellite Account,1990 to 2007”, Income, pensions, spending and wealth, df/psa e.pdf.Overview of private pension system by type of plan and financing vehicleType of planIncluded inMandatory/OECD GPSOccupaQuasidatabase VoluntarytionalmandatoryOccupationalregistered pensionplans (RPPs):trusteed pensionfundsA pension fund operated under atrust agreement where a group ofindividuals or a trust company actsas a trustee. OccupationalRPPs: insurancecompanycontracts fundsAn RPP operated under aninsurance company contract. OccupationalRPPs:consolidatedrevenue fundsA financing arrangement for RPPsponsored by the public sectorwhere most of the money fromcontributions is paid into theconsolidated revenues of theappropriate government and usedfor general governmentexpenditures. Personalregisteredretirement savingplans (RRSPs)A capital accumulation programmedesigned to encourage saving forretirement. Contributions are taxdeductible within prescribed limits. Financing vehiclePersonalPensionfundBookreservePensionBanks orinsurance investmentcontract companies Source: OECD Global Pension Statistics.176OECD PRIVATE PENSIONS OUTLOOK 2008 – ISBN 978-92-64-04438-8 – OECD 2009

5.UNITED STATESNotes1. Statistics Canada (2004), Pension Plans in Canada, Pensions and Wealth Research Series, 1 January.2. Statistics Canada.3. The Reserve Fund is established with 5% of the pension company profits.4. The TFR is a sort of severance pay scheme that the employer has to pay to an employee in the caseof his dismissal or retirement. Every month the employer sets aside 6.91% of the gross salary of theemployee; every year the accumulated stock of the TFR, which is accounted as a book reserve inthe balance sheet of the employer, is appreciated according to a CPI-linked formula.5. Minimum pension is equivalent to a 1997’s monthly minimum wage updated in accordance withinflation.6. The average monthly wage in Poland is PLN 2 869.69 (USD 1 025) before tax and social securitycontributions. The net wage is around 70% of the gross.7. Contribution rates and information on rates of contracting out were obtained from theDepartment for Work and Pensions’ report entitled Employers’ Pension Provision Survey 2005.OECD PRIVATE PENSIONS OUTLOOK 2008 – ISBN 978-92-64-04438-8 – OECD 2009303

ACRONYMS, SYMBOLS AND CONVENTIONAL SIGNSAcronyms, Symbols and Conventional PKNFLDILOMOMPNHOOFEPAMCPAYGContractual Early Retirement PlanAssociation Générale des Institutions de Retraite des CadresAsset Liability ManagementAustralian Prudential Regulation AuthorityAssociation des Régimes de Retraites ComplémentairesAssociation d’Épargne PensionAdditional Voluntary ContributionsCommission Bancaire, Financière et des AssurancesCentral and Eastern EuropeNational Commission for the Retirement Savings SystemCanadian Pension PlanCommission de Surveillance du Secteur FinancierDefined BenefitDefined Benefit ObligationDefined ContributionEarnings-related provisions for private-sector workersEuropean Economic AreaExempt-Exempt-taxEmployee Pension InsuranceEmployees’ Pension FundFinancial Market AuthorityGross Domestic ProductGlobal Pension StatisticsHM Revenue and CustomsIncome Base AmountIndividual Retirement AccountIndividual Retirement AccountCollectively bargained pension plan for white-collaremployeesPolish Financial Supervisory AuthorityLiability-Driven InvestmentConfederation of Trade UnionsMandatory OccupationalMandatory PersonalConfederation of Norwegian Business and IndustryOpen Pension FundPension Asset Management CompanyPay-as-you-goOECD PRIVATE PENSIONS OUTLOOK 2008 – ISBN 978-92-64-04438-8 – OECD 200935

ACRONYMS, SYMBOLS AND CONVENTIONAL SIGNSPEEPERCOPERPPIPPlan Épargne EntreprisePlan d’Épargne pour la Retraite CollectifPlan d’Épargne Retraite PopulairePersonal pension plan set up through life insurancecontractEmployee Pension FundPremium Pension AuthorityPublic Pension Reserve FundPersonal Retirement Savings AccountQuasi-Mandatory OccupationalRetirement Annuity ContractState Second PensionSwedish Employers’ ConfederationSociété d’Épargne Pension à Capital VariableSeverance Pay SystemSavings Incentive Match Plan for EmployeesSystem of National AccountSupplementary Pension Management CompanySocial Security Reserve FundSovereign Wealth FundTrattamento di Fine RapportoTax Qualified Pension PlanUnited KingdomUnited States of AmericaVoluntary OccupationalVoluntary DCADCZKDKKHUFISKThousandsMillionBillionAustralian dollarEuroUnited States dollarCanadian dollarCzech korunaDanish kroneForintIcelandic kronaJPYKRWMXNNZDNOKPLNSKKSEKCHFTRYGBPYenSouth Korean wonMexican pesoNew Zealand dollarNorwegian kroneZlotySlovak korunaSwedish kronaSwiss francNew Turkish LiraBritish poundConventional signsn.a.: not applicablen.d. / .: not available36OECD PRIVATE PENSIONS OUTLOOK 2008 – ISBN 978-92-64-04438-8 – OECD 2009

ACRONYMS, SYMBOLS AND CONVENTIONAL SIGNSCountry ISO codeAustraliaAustriaBelgiumCanadaCzech ew ZealandNorwayPolandPortugalSlovak RepublicSpainSwedenSwitzerlandTurkeyUnited KingdomUnited StatesOECD PRIVATE PENSIONS OUTLOOK 2008 – ISBN 978-92-64-04438-8 – OECD 7

GLOSSARYGlossaryMost of the definitions below draw on the publication Private Pensions: OECDClassification and Glossary. It can be downloaded at the following address: tionActive memberA pension plan member who is making contributions (and/or on behalf of whomcontributions are being made) and is accumulating assets or has accrued assets in the pastand is not yet retired.AnnuityA form of financial contract mostly sold by life insurance companies that guarantees a fixedor variable payment of income benefit (monthly, quarterly, half-yearly, or yearly) for the lifeof a person (the annuitant) or for a specified period of time. It is different from a lifeinsurance contract which provides income to the beneficiary after the death of the insured.An annuity may be bought through instalments or as a single lump sum. Benefits may startimmediately or at a pre-defined time in the future or at a specific age.Asset allocationThe spread of fund investments among different investment forms.Asset managerThe individual(s) or entity(ies) endowed with the responsibility to physically invest thepension fund assets. Asset managers may also set out the investment strategy for a pensionfund.Basic state pensionA non-earning related pension paid by the State to individuals with a minimum number ofservice years.BeneficiaryAn individual who is entitled to a benefit (including the plan member and dependants).BenefitPayment made to a pension fund member (or dependants) after retirement.Book reserved pension plansSums entered in the balance sheet of the plan sponsor as reserves or provisions foroccupational pension plan benefits. Some assets may be held in separate accounts for thepurpose of financing benefits, but are not legally or contractually pension plan assets. MostOECD countries do not allow this method of financing. Those that do usually require theseplans to be insured against bankruptcy of the plan sponsor through insolvency guarantyarrangement.Closed pension fundsFunds that support only pension plans that are limited to certain employees (e.g. those ofan employer or group of employers).ContributionA payment made to a pension plan by a plan sponsor or a plan member.Contribution rateThe amount (typically expressed as a percentage of the contribution base) that is needed tobe paid into the pension fund.Deferred memberA pension plan member that no longer contributes to or accrues benefits from the plan buthas not yet begun to receive retirement benefits from that plan.Deferred pensionA pension arrangement in which a portion of an employee’s income is paid out at a date afterwhich that income is actually earned.Deferred retirementA situation when an individual decides to retire later and draw the pension benefits later thantheir normal retirement age.Defined benefit (DB) occupational pension plansOccupational plans other than defined contribution plans. DB plans generally can beclassified into one of three main types, “traditional”, “mixed” and “hybrid” plans.“Traditional” DB planA DB plan where benefits are linked through a formula to the members' wages or salaries,length of employment, or other factors.OECD PRIVATE PENSIONS OUTLOOK 2008 – ISBN 978-92-64-04438-8 – OECD 2009305

GLOSSARY306TermDefinition“Hybrid” DB planA DB plan where benefits depend on a rate of return credited to contributions, where thisrate of return is either specified in the plan rules, independently of the actual return on anysupporting assets (e.g. fixed, indexed to a market benchmark, tied to salary or profit growth,etc.), or is calculated with reference to the actual return of any supporting assets and aminimum return guarantee specified in the plan rules.“Mixed” DB planA DB plan that have two separate DB and DC components but which are treated as part ofthe same plan.Defined contribution (DC) occupational pensionplansOccupational pension plans under which the plan sponsor pays fixed contributions and hasno legal or constructive obligation to pay further contributions to an ongoing plan in theevent of unfavourable plan experience.DependantAn individual who is financially dependent on a (passive or active) member of a pensionscheme.Dependency ratioTypically defined as the ratio of non-active age to those of active age in a given population.Final average earningsThe fund member’s earnings that are used to calculate the pension benefit in a definedbenefit plan; it is typically the earnings of the last few years prior to retirement.Fund memberAn individual who is either an active (working or contributing, and hence activelyaccumulating assets) or passive (retired, and hence receiving benefits), or deferred (holdingdeferred benefits) participant in a pension plan.Funded pension plansOccupational or personal pension plans that accumulate dedicated assets to cover the plan’sliabilities.FundingThe act of accumulating assets in order to finance the pension plan.Funding levelThe relative value of a scheme’s assets and liabilities, usually expressed as a percentagefigure.Funding rulesRegulation that requires the maintenance of a certain level of assets in a pension fund inrelation to pension plan liabilities.Gross rate of returnThe rate of return of an asset or portfolio over a specified time period, prior to discountingany fees of commissions.Group pension fundsMulti-employer pension funds that pool the assets of pension plans established for relatedemployers.Industry pension fundsFunds that pool the assets of pension plans established for unrelated employers who areinvolved in the same trade or business.Mandatory contributionThe level of contribution the member (or an entity on behalf of the member) is required topay according to scheme rules.Mandatory occupational plansParticipation in these plans is mandatory for employers. Employers are obliged by law toparticipate in a pension plan. Employers must set up (and make contributions to)occupational pension plans which employees will normally be required to join. Whereemployers are obliged to offer an occupational pension plan, but the employees'membership is on a voluntary basis, these plans are also considered mandatory.Mandatory personal plansThese are personal plans that individuals must join or which are eligible to receivemandatory pension contributions. Individuals may be required to make pensioncontributions to a pension plan of their choice normally within a certain range of choices orto a specific pension plan.Minimum pensionThe minimum level of pension benefits the plan pays out in all circumstances.Multi-employer pension fundsFunds that pool the assets of pension plans established by various plan sponsors. There arethree types of multi-employer pension funds: a) for related employers i.e. companies thatare financially connected or owned by a single holding group (group pension funds); b) forunrelated employers who are involved in the same trade or business (industry pensionfunds); c) for unrelated employers that may be in different trades or businesses (collectivepension funds).Net rate of returnThe rate of return of an asset or portfolio over a specified time period, after discounting anyfees of commissions.Normal pension ageAge from which the individual is eligible for pension benefits.Occupational pension plansAccess to such plans is linked to an employment or professional relationship between theplan member and the entity that establishes the plan (the plan sponsor). Occupational plansmay be established by employers or groups the

Pension Country Profile: Canada (Extract from the OECD Private Pensions Outlook 2008) Contents Each Pension Country Profile is structured as follows: ¾ How to Read the Country Profile This section explains how the information contained in the country profile is organised. ¾ Country Profile The country profile is divided into six main sections: