After years of uncertainty about RRSP-based annuities from insurance and trust companies, Quebec has fine-tuned the law: these products are now unseizable.
Buried in the bustle of the end of the parliamentary session and the holiday season, the adoption of Bill 136, the Act to amend the act respecting insurance and the act respecting trust companies and savings companies went virtually unnoticed.
But its impact on financial security advisors’ clients is huge. The law confirms that capital accumulated in annuities available from insurance and trust companies cannot be seized. Although the law took effect on December 16, some sections will apply only as of March 1, 2006.
The law’s strong point: it eliminates grey areas in the interpretation of what is or is not seizable in an RRSP. In July 2005, the Superior Court upheld a judgment on the seizure of an insurer’s RRSP product – a product many had considered unseizable. Since then, the industry had been rudderless on this issue.
Before these amendments to the law, creditors could appropriate an investor’s annuity in court if they could prove that there was no disposition of capital. The expression “disposition of capital” means that the investor is deemed to have transferred control of the money placed in the RRSP to a financial institution that creates the annuity.
As most RRSPs offered by insurers and trusts consist of annuities that let investors make investment decisions, their seizability was contested more than once.
Bill 136 now makes RRSPs exempt from seizure even when they take the form of an annuity that grant investors leeway to make investment choices and partial or total withdrawals.
All the same, the amendments specify restrictions. Division II, section 33.4 of Bill 136 states that: “the amount of the annuity to be paid periodically must, at the time the contract is entered into, be determinate, or at least determinable according to variables and a computation method specified in the contract.”
Holders of RRSPs transformed into annuities before the March 1, 2006 deadline can breathe easier. The provisions of Bill 136 are retroactive, finance minister Michel Audet announced to the Commission des finances publiques in December.
Yves Millette, senior vice-president, Quebec affairs, at the Canadian Life and Health Insurance Association (CLHIA), saw government intervention as essential.
After all the turbulence, the new law clearly spells relief for the industry. “Although we decided that our contracts could still be issued in the same way, there was so much uncertainty in the industry that it was preferable to have a regulation that clarified all of this,” Mr. Millette explained.