With four months left in 2016, employers who have supplementary pension liabilities that they wish to annuitize should take prompt action to consider the implications of the changes to the tax rules for prescribed annuities that are coming into force on January 1, says a Hicks Morley ‘FTR Now.’ The changes to Canadian tax rules coming into force will impact how certain annuity payments are taxed. For prescribed annuities purchased after that date, more of each payment will become taxable as a result of these changes. Accordingly, employers who offer supplementary pension plans and are considering settling supplemental benefits in the coming years may wish to consider annuitizing current and deferred pensioners, where permitted, before year’s end with a view to preserving more favourable tax treatment for pensioners and, in some cases, reducing employer settlement costs. It says for a host of reasons, annuity purchases can take several months to implement. At the outset, it will be necessary to work with legal counsel to determine whether an annuity purchase is permitted under the terms and conditions of the particular supplementary pension arrangement. Where member consent to an annuity purchase is required, it will be necessary to determine whether members must be given other options in addition to an annuity purchase. From a governance perspective, it will be necessary to obtain any necessary approvals from the persons or committees authorized to do so. As well, conditions in annuity markets necessarily change over time. Insurers who have unused capacity to underwrite annuities may offer annuity purchase rates more favourable than rates offered only months earlier. For this reason, if an employer has decided to annuitize supplementary pension obligations, it can be highly advantageous for an employer to do the groundwork in advance, with a view to quick implementation should favourable market conditions materialize.
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