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OSFI lifts freeze on commuted value transfers and buy-out annuity purchases

On August 31, 2020, the Office of the Superintendent of Financial Institutions (OSFI) announced it has revised its Directives of the Superintendent pursuant to the Pension Benefits Standards Act, 1985 (the Directives) to lift the freeze on commuted value transfers and buy-out annuity purchases effective as of that date.

Reasons for lifting the temporary freeze

In light of the extraordinary circumstances posed by the COVID-19 crisis, OSFI announced a freeze on portability transfers and buy-out annuity purchases relating to defined benefit provisions of federally regulated pension plans effective March 27, 2020. The freeze was meant to address significant market volatility that resulted from the COVID-19 pandemic, specifically to prevent transfers or annuity purchases from impairing plan solvency. This announcement was discussed in the April 2020 News & Views.

OSFI later revised its approach to provide for automatic consent for portability transfers for members who were retirement-eligible, as discussed in the June 2020 News & Views.

While markets remain volatile, OSFI says that the economic recovery has been well-sustained and solvency ratios have improved. In addition, OSFI has introduced certain risk-mitigation measures to prevent transfers and annuity purchases from disadvantaging remaining plan members.

Revised restrictions on portability transfers and annuity purchases

The Directives have been revised to reflect conditions on portability transfers and buy-out annuities broadly similar to those that were in place prior to the freeze, but with some adjustments.

In order for a transfer or annuity purchase to be permitted, the amount of the initial transfer cannot exceed the transfer value—namely, the commuted value of the pension benefit multiplied by the plan’s “transfer ratio.” The “transfer ratio” is a newly introduced term that is defined as the lesser of:

  • a) the solvency ratio determined in the most recent actuarial report of the plan; and
  • b) the solvency ratio projected to a date no earlier than March 31, 2020.

Where a plan has a transfer ratio that is less than 1.00, the full value of the pension benefit credit can be transferred only upon meeting certain conditions:

  • a) A transfer is permitted if the amount by which the commuted value exceeds the transfer value (i.e., the “transfer deficiency”) for any individual transfer must be less than 20% of the Year’s Maximum Pensionable Earnings (YMPE) and the aggregate value of all pension benefit credits being transferred must not exceed 5% of the plan’s assets at the valuation date of the most recent actuarial report. The 5% aggregate limit is determined based on the aggregate value of all pension benefit credits transferred since the later of (i) the effective date of the Directives and (ii) the valuation date of the most recent actuarial report.
  • b) Alternatively, the employer must remit to the fund the amount of the transfer deficiency.

The conditions for portability transfers are different from those in place prior to the temporary freeze. Prior to the temporary freeze, the exception was granted for transfers that were less than 5% of the YMPE, whereas this individual limit is now 20% of the YMPE. Furthermore, the 5% aggregate limit is now based on the sum of all individual commuted values transferred, whereas before the portability freeze it was based on the sum of all the transfer deficiencies previously transferred out of the plan that were not funded by the employer.

Buy-out annuity purchases are permitted provided that the solvency ratio following the purchase of the annuity” is at least 0.85 or an amount has been paid to the pension fund to maintain the solvency ratio following the purchase of the annuity at the lesser of 0.85 and the transfer ratio. This is the same restriction that applied before the temporary freeze.

Other issues

OSFI has also clarified some additional matters relating to the administration of the temporary freeze and resuming portability transfers.

OSFI indicates that commuted values should be calculated as at the member’s termination date. Re-calculation of the commuted value is only permitted if the recalculated amount is greater than the commuted value calculated at the member’s termination date plus interest.

A member’s entitlement to elect a commuted value transfer at termination is based on the member’s entitlement at the time of termination, not at the time the freeze was lifted. Therefore, a member who was eligible at termination to elect a commuted value transfer remains eligible to elect this option even if the member has reached early retirement age by the time the freeze was lifted and the pension plan 1does not permit transfers after early retirement age.

If an administrator was granted consent by OSFI to make a transfer or annuity purchase subject to certain conditions, those conditions no longer apply as of August 31, 2020. Rather, the new conditions on portability transfers included in the revised Directives will apply.


The end of the temporary freeze indicates a renewed confidence in the economic recovery and the prospects for defined benefit pension plans from OSFI. Plan administrators will be required to implement the updated Directives and to process any commuted value transfers that have been delayed as a result of the freeze.

OSFI has indicated that it may decide to reintroduce a temporary freeze or change the conditions for such transfers and annuity purchases as a result of future events, such as a further deterioration in the financial and economic environment.

News & Views - September 2020 (PDF)