Thank you.
Those clauses deal with measures that were implemented or proposed in the budget concerning individual pension plans. As the name implies, individual pension plans are a unique kind of pension plan designed to provide pension benefits to a single person or generally a small number of family members.
The difficulty that the department had identified--and it has been reflected in the budget--has to do with circumstances where these individual pension plans have sufficient funds in them such that they tend to generate, in effect, an intergenerational transfer of funds, where the amount in the pension fund exceeds the amount to fund the pension. As a result, sometimes intentionally, there are amounts that will not be taxed until they fall into the hands of the next generation.
In looking at that issue and comparing these individual pension plans to other types of pension plans that are out there, such as large defined benefit pension plans and RRSPs, it's clear these types of plans are in many senses more similar to RRSPs, because they're available for one person or a small number of persons, versus the sort of broadly available large defined benefit pension plans.
Now, the testimony compared the results one can achieve with these very small plans to the large defined benefit plans, and said, well, the large defined benefit plans have a surplus provision that allows them to go into surplus up to 25%. Those rules were put in on purpose to facilitate and provide that, in those circumstances where you have a big pension plan and you're subject to fluctuations in value of the plan because you have the widespread investments, it is ensured that there's enough funding in that plan, with a little bit of give, to ensure the plan remains viable.
In contrast, if you look to an RRSP, you say, well, with an RRSP, when the person turns 71, they're to convert it into a RRIF and start payout. That reflects the fact that under the tax system, the retirement system is designed as an after-tax system, in that you get a deduction for the amounts contributed, and they're not taxable until they come out. There is some tax assistance there. It's intended for retirement savings. Hence, when you become of retirement age, it only makes sense that you have to start drawing down those funds.
If you compare the tax proposals we've made here for IPPs with the situation of RRSPs, they will be put in exactly the same situation. They will be required, after the age of 71, to start drawing down the pension plan at the same amount and in the same ratios as would a RRIF.
Now, some of the testimony said that sometimes these surpluses aren't always due to tax planning. One of the plans that some people might use is to convert their interest in a defined benefit plan into an individual pension plan, and then, once the conversion is done, reduce the benefits, with the result that this plan automatically gets pushed into surplus situations.
I said, well, it doesn't always happen that way: you could just have been very successful in your investments, and as a result, the plan shows a surplus. Now, that can be exactly equally true of an RRSP or a RRIF. In those circumstances, if you've done very well in your RRIF, you might have more tax-assisted pension funding in your RRIF than would be the case in a defined benefit plan that's not in surplus position. One could say that those things are in a similar situation. They are in surplus position.
Nevertheless, they are required to distribute the funds according to the RRIF schedule, which is all we're asking of these individual pension plans. We're asking them to be put in exactly the same position as those who save in their RRSPs.
In both circumstances, you're looking at, in the case of an RRSP, one particular individual, and in the case of the individual pension plans, one particular individual or a small group of individuals, and we think it makes more sense to align the tax provisions for the individual pension plans with the RRSPs and RRIFs than it does to align them with something else for which a surplus entitlement is in play but for completely different reasons.