XXXX B.G. Dodd (613) 995-0051
February 28, 1986
Dear Sirs:
We are writing in reply to your letter of October 23, 1985 concerning the purchase of an annuity prior to the maturity of a registered retirement savings plan (RRSP).
Your particular question is whether an annuity which will provide the "retirement income" (as described in paragraph 146(1)(Œ.1) of the Act) could be purchased earlier in the calendar year in which the annuitant attains 71 years of age with the first annuity payment thereunder being deferred until the following calendar year. You indicate that this course of action might be desirable to secure a particular interest rate under the annuity contract where the annuitant is concerned that interest rates may decline before the end of the calendar year in which he or she becomes 71 years of age.
Paragraph 146(1)(Œ.1) of the Act refers to "retirement income" as being "an annuity commencing at maturity ...". It is our view that this does not mean that annuity payments must commence on the maturity date as such, but rather, that the annuity contract must be negotiated and come into existence prior to the end of the year in which the annuitant attains age 71. Accordingly, where this is accomplished on maturity, it would frequently be the case that the first annuity payment would be made in the calendar year immediately following that in which the RRSP matured. For example, measured from the date the annuity contract was entered into, say late- December, 1986, in the case of an annuity providing for monthly payments not payable in advance, payments must commence not later than late-January, 1987.
It is our view this could also apply where the annuity is purchased in advance of the maturity date but the date for commencement is deferred until maturity date so that payments commence as described above. To accomplish this, the deferred annuity must meet the definition of "retirement income" contained in paragraph 146(1)(i.l) of the Act so that its acquisition will constitute a qualified investment for an RRSP as described in subparagraph 146(1)(g)(iii) of the Act while held by the plan. Upon maturity, the annuity must then produce equal annuity payments in accordance with paragraph 146(2)(b) of the Act. It should also be noted that this could apply only in the case of a trusteed RRSP. In our view, this type of arrangement is not possible in the case of a plan issued by a depositary as described in clause 146(1)(j)(ii)(C) of the Act inasmuch as all the property of such a plan must be invested in "deposits".
Another alternative would be to provide a maturity date that coincides with the purchase of the annuity with the annuity payable on a basis which would see the first payment being made in the next calendar year., This would presumably involve an annuity which is payable on a semi-annual or annual (but not longer) basis depending on the intervening period between maturity date and the commencement of the next calendar year. (This would also mean, of course, that no further contributions could be made by the annuitant pursuant to subparagraph 146(2)(b)(ii) of the Act.)
We trust the foregoing will be of assistance to you.
Yours truly,
for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch