Bill 33 – Significant Changes for IPPs and High Income Earners in B.C.

December 6 2023

On November 8, 2023, Bill 33 – the B.C. Pension Benefits Standards Amendment Act received Royal Assent, marking a pivotal moment for high-income earners in British Columbia. An important feature of this Bill is to amend Section 3 of the B.C. Pension Benefits Standards Act (PBSA or the “Act”) to change the exemption from the provisions with respect to Individual Pension Plans (IPPs) from “connected members” to “specified individuals” as defined in the Income Tax Regulations Section 8515.4.*

IPPs for connected members (10% or more shareholders or related persons) are still exempt from the B.C. PBSA. The difference is that that IPPs for “high earners” are now also exempt from the requirements of the Act.

The amendment to the Act means that if you earn an amount higher than $166,500 (2.5 times the current 2023 YMPE of $66,600), you can implement an IPP and no longer have to register the plan with B.C. and no longer have to subject the plan to the requirements of the Act.

In the opinion of Westcoast Actuaries, the requirements of the PBSA should not have been extended to IPPs for “high earners” as these plans did not require the provisions of the PBSA required to protect the interests of members. This is a move in the right direction by the B.C. Government.

There would, of course, remain the requirement for IPPs to be registered with the Canada Revenue Agency (CRA) for tax purposes and obey the rules set out for such plans in the Income Tax Act (ITA) and Regulations, but this is relatively a small price to pay for the significant tax advantages and benefits an IPP can offer over other savings plans such as RRSPs.

You may have been interested in implementing an IPP at some time in the past but have put off this decision because of the red tape involved, the minimum statutory funding requirements, and the overall cost of administering such a plan. If so, you may want to reconsider this decision in light of the new exemption from the B.C. PBSA. The exemption would enable a pension plan sponsor in B.C. to implement an IPP without having to pay annual fees to the B.C. Government, complete onerous provincial annual pension plan filings with the B.C. Financial Services Authority (BCFSA), the B.C. provincial pension regulator, or deal with the mandatory requirements to pay contributions required under the Act.

With this exemption from the funding requirements of the Act, employers will be much more willing to establish IPPs for the high earners as these IPPs will have increased flexibility. This will lead to further opportunities to add a Retirement Compensation Arrangement (RCA) in addition to the IPP, acting as the base plan. The IPP/RCA combination will achieve higher income splitting with a spouse particularly for short-service executives. The maximum splitting limit is currently $122,730 for 2023 and increases every year. So for a 10-year service executive at retirement, it is possible to create an RCA providing annual supplemental pension up to around $87,660 in 2023 that is eligible for income splitting with a spouse.

Bill 33 has radically changed the pension landscape for IPPs for high earners in B.C. For high income earners eager to explore the advantages an IPP can offer, please contact our office via phone at 604-730-1898 or via email at IPP@wainc.ca. As the Canadian leader in IPP expertise, we will work with you to evaluate whether an IPP is suitable for your specific circumstances and illustrate the benefits an IPP can offer.

* The definition of the ITR 8515.4 reads that an individual is a “specified individual” if,

  1. the individual was connected at any time in the year with an employer who participates in the plan; or
  2. the aggregate of all amounts each of which is the remuneration of the individual for the year from an employer who participates in the plan, or from an employer who does not deal at arm’s length with a participating employer, exceeds 2 1/2 times the Year’s Maximum Pensionable Earnings for the year.