COVID pension regulation amendments create new opportunity for lenders

Banks and other lender financial institutions should take note of new draft regulations to the Income Tax Act presented by the Canadian federal government on July 2. Among the changes is relief to the borrowing restrictions which govern registered pension plans. Until the end of January 2021, borrowings by a registered pension plan need not be repayable until April 30, 2021. This temporarily alleviates the current rule restricting borrowings not made for real estate investments to single 90-day terms.

Registered pension plans might seek to use this relief to take on longer term borrowings in the COVID-environment to support immediate shortfalls in their ability to make pension payments or other payments or investments caused by the performance of their investments or simply to access funds at current favourable interest rates. Continuing compliance with other laws, including pension standards legislation, will be required. Availability of security is limited and the applicable plan terms must permit borrowings. However, given the strong regulatory environment in which registered pensions plans exist, this change may present a good opportunity for lenders to deploy capital. Further consideration may have to be given to priorities and cash flow in the future, particularly at the plan sponsor level.

Gowling WLG has a leading Canadian practice in both the lending and pension fields.