Purchasing annuities is a de-risking strategy for defined benefit (“DB”) pension plans, allowing plan administrators to transfer pension obligations to insurers and reduce financial risks. We will discuss below key legal considerations relating to buy-out annuity purchases in Canadian jurisdictions which provide a legal discharge, meaning that the benefits paid thereunder constitute a final payment such that the plan and plan administrator are generally released from further obligations.

This article first discusses the jurisdictions permitting buy-out annuity purchases with legal discharge and key considerations applicable to such annuity purchases and secondly describes the rules applicable to multi-jurisdictional pension plans. This article does not discuss the (i) funding-related requirements which must be met for buy-out annuity purchases to result in a legal discharge, and (ii) tax considerations relating thereto.  

Main Types of Annuity Purchases

Two primary types of annuity purchases exist, that is, buy-in annuities and buy-out annuities.

In a buy-in annuity purchase, the pension plan pays a premium to an insurer, which then makes periodic payments to the pension fund that represent the aggregate pension amount covered by the annuity contract. The legal obligation to pay the pension benefits to annuitants remains with the plan, although administrative services may be outsourced in this respect. If the insurer defaults, including in the unlikely event of insolvency, the plan must cover any shortfall not protected by Assuris¹—commonly referred to as the “boomerang risk.” 

In a buy-out annuity purchase, further to the payment of a premium by the pension plan, the insurer pays pension benefits directly to annuitants, based on individual certificates. In jurisdictions where permitted, as discussed below, this may result in a legal discharge. 

Where permitted in the applicable legislation, buy-in annuity contracts may be converted into a buy-out annuity contract, provided prescribed conditions are met.  

Legal Discharge Jurisdictions

As at April 1, 2026, the following jurisdictions have effective pension legislation permitting buy-out annuity contracts with legal discharge: British Columbia, New Brunswick, Nova Scotia, Ontario, and Québec (collectively, the “Legal Discharge Jurisdictions”).

Canada², Saskatchewan³ and Alberta⁴ have introduced similar provisions in their respective pension legislation, which are not yet in force and lack corresponding regulations. For Alberta, it must be noted however that, while the pension legislation does not yet explicitly provide for legal discharge following a buy-out annuity purchase, the Alberta Treasury Board and Minister of Finance have indicated that buy-out annuity purchases—whether from ongoing or terminating plans—are consistent with long-standing administrative practice.

Without claiming to be exhaustive, key considerations applicable to buy-out annuity contracts with legal discharge (excluding funding-related and tax legislation requirements) are summarized below.

Scope and Limitation of Legal Discharge

Buy-out annuity contracts with legal discharge may be subject to restrictions based on the category of individuals and the type of DB pension plans covered.

• Eligibility of Individuals: Under most Legal Discharge Jurisdictions, deferred and retired members as well as any persons receiving a pension (e.g., surviving spouses) may be covered by buy-out annuity purchases with legal discharge. However, under the Québec Supplemental Pension Plans Act, the legal discharge does not extend to deferred members who have not filed an application for payment of benefits.
• Plan Type Restrictions: Certain DB plans are excluded from legal discharge provisions, such as multi-employer plans in Ontario and municipal and university sector plans in Québec.
• Residual Member Status: Most jurisdictions maintain a residual status for annuitants following plan wind-up. In Québec, annuitants retain member status for three years for purposes of plan surplus or reduction of benefits. In Nova Scotia, annuitants retain member status for three years for purposes of plan surplus; in Ontario, this residual status continues indefinitely. In New Brunswick, the pension regulator’s publications refer to a similar right, apparently for a three-year period, although the length of such residual status remains unclear.

Required Terms and Documentation 

All Legal Discharge Jurisdictions require the buy-out annuity contracts to reflect some terms, while some of them require documentation to be filed with pension regulators.

• Authorization to Make Buy-out Annuity Purchases: The pension legislation of British Columbia and Québec requires that such authorization be embedded in the plan text. Furthermore, Québec is the only jurisdiction that requires the person that can amend the pension plan (usually the sponsoring employer) to establish an annuity purchasing policy in accordance with prescribed requirements for the plan administrator to proceed with the purchase of annuities with legal discharge. 
• Requirement to Provide Same Benefits: All Legal Discharge Jurisdictions require that buy-out annuity contracts provide same benefits as those of the pension plan. In Québec, an exception is provided where the annuity is not available on the market. In such case, an annuity with similar characteristics and equal value may be provided, subject to the annuitant’s written consent. 
• Compliance Certificate and Accompanying Documents: Ontario and Nova Scotia require the filing of a certificate prepared and signed by an actuary certifying that, in the actuary’s opinion, the plan administrator has complied with its obligations, such as providing same benefits as described above. 
• Prescribed Language: All Legal Discharge Jurisdictions set out language which needs to be included in the annuity purchase contract with the insurer in respect of, inter alia, non-alienation of benefits, spousal rights and division of pension on marriage breakdown. The annuity purchase contract must also reflect that the insurer will provide an individual certificate to annuitants confirming the annuity purchase. 
• French Language: For annuity contracts subject to the Québec Charter of the French language, additional requirements apply such as the obligation for the insurer to issue a copy of the policy drawn up in French. 

Disclosure Requirements 

In Ontario and Nova Scotia, the plan administrator must notify the annuitants of the buy-out annuity purchase and communicate prescribed information such as the date of the purchase, the name and contact information of the insurer and the statement that the plan administrator intends to file a compliance certificate referred to above. 

In New Brunswick, an obligation to notify annuitants is reflected in the pension regulator’s publications. 

In Québec, similar disclosures must appear in annual member statements. Additionally, if buy-out annuities were purchased since the last annual member meeting, the meeting agenda must include specific language. 

Multijurisdictional Pension Plans  

Pension plans with members across more than one jurisdiction are governed by the 2020 Agreement Respecting Multi-Jurisdictional Pension Plans, as amended in 2023 (the “MJA”) which has been entered into by the federal government and all provinces except Prince Edward Island. In short, under the MJA, (i) each plan is registered with a single pension regulator, that is, the major authority, which is the jurisdiction with the most active members; (ii) the major authority must apply the legislation of minor authorities (jurisdictions with fewer active members) and exercise their regulatory powers accordingly.

Subsections 6(5) and 6(6) of the MJA outline rules for annuity purchases that result in legal discharge, which can be summarized as follows:

• The applicable discharge requirements are generally those of the pension legislation of the jurisdiction governing the members’ benefits (i.e., their jurisdiction of employment).
• However, in respect of jurisdictions which provide legislation that includes annuity purchases with legal discharge, if the major authority permits legal discharge, its funding-related discharge requirements apply overriding those of minor authorities. All other discharge requirements must be complied with in accordance with the pension legislation of the jurisdiction governing the members’ benefits (as referred to immediately above). 
• If the major authority does not permit discharge, annuity purchases may still result in discharge for members governed by minor authorities that do, provided the requirements in such jurisdiction are met. 

For example, consider a plan with members in Ontario, Quebec, and Manitoba, where Ontario is the major authority. The plan purchases annuities for Ontario, Quebec and Manitoba retirees. Ontario and Quebec permit annuity purchases with legal discharge; Manitoba does not. 

• The plan may be discharged from its obligations to Ontario and Quebec retirees if it meets Ontario’s funding-related requirements.
• For Ontario retirees, additional non-funding requirements must also be met under Ontario law. 
• For Quebec retirees, additional non-funding requirements (e.g., annuity purchasing policy and member disclosures) must also be met under Quebec law.
• Manitoba retirees remain under the plan’s responsibility, as Manitoba legislation does not permit discharge.

Key Takeaways 

Buy-out annuity purchases with legal discharge are governed by specific pension legislation requirements that differ across jurisdictions. Plan administrators should ensure compliance with these rules all through the annuity purchase process, including when negotiating the annuity contracts. 

Philippe Levac, Associate, Tax Group (Pension and Benefits), Stikeman Elliott LLP

Philippe Levac is an associate in the Tax Group of the Montréal office and a member of the National Pension and Benefits Group. Philippe advises on all aspects of pension and benefits legislation and regulation, including in the context of corporate transactions such as mergers and acquisitions, insolvency and reorganizations. His practice also focuses on issues related to pension plan governance, administration and investment. Prior to joining Stikeman Elliott, Philippe worked for over eight years as a legal expert in pension plans and asset management with an actuarial consulting firm. He began his career by practicing for six years with a national firm in the areas of employment and labour law and pensions and benefits law. During his studies, Philippe received the excellence award in labour law from the University of Montréal.