Individual Pension Plans Face Revocation, Tax Consequences

(TORONTO) September 24, 2001 - The Financial Services Commission of Ontario (FSCO) is warning consumers that if monies transferred from a pension plan to an Individual Pension Plan (IPP) are not administered as a pension, FSCO will take steps to revoke the registration of the IPP.

"The administrator of the IPP receiving the transfer must certify that the funds will be treated like a pension" said Dave Gordon, Deputy Superintendent - Pensions.

"As well as being in violation of the Pension Benefits Act, some IPPs may not always comply with the federal Income Tax Act. The Canada Customs and Revenue Agency are concerned that in setting up these new IPPs, there is no bona fide employment relationship with the salaries to support the past service benefits that they are, in theory, buying," explained Mr. Gordon.

This issue arises when an individual leaves the service of an employer and takes the commuted value of their pension. The individual sets up a corporation with an IPP and transfers the commuted monies into the new pension plan with the individual as the only plan member. They will base the liabilities of the new plan on a low salary that they will "pay" themselves. Once an actuarial valuation is done on the new plan, based on the lower salaries, there may appear to be a surplus, which the member will try to claim from the ongoing plan.

"Pensions are designed to provide a stable income during retirement," cautioned Mr. Gordon. "If we discover people are trying to use their IPP to circumvent the Pension Benefits Act, we will take steps to deregister the plan. If we deregister the plan, there will be serious tax consequences."

More information on IPPs and the Pension Benefits Act may be obtained by visiting the FSCO website at

For more information
Brian Donlevy, Information Officer
(416) 590-7057