2026 Ontario Budget: pension and benefits updates

On March 26, 2026, the Ontario government released the 2026 Ontario Budget: A Plan to Protect Ontario (the Budget), along with the Plan to Protect Ontario Act (Budget Measures), 2026 (Bill 97). The Budget outlines several initiatives that will be of interest to employers and pension plan administrators.

What you need to know

• Plan administrators may apply to extinguish the rights and benefits of former members and retirees who are unlocatable and at least 100 years old, provided the plan administrator has conducted required searches and satisfied the prescribed waiting period to be set out in the regulations.
• Full unlocking will be available to (i) account holders who have reached the early retirement age under the terms of the pension plan; and (ii) account holders under the age of 55 and whose total balance in the locked-in account is less than 40% of the Year’s Maximum Pensionable Earnings ($29,840 in 2026).
• The Pension Benefits Guarantee Fund (PBGF) will double the guarantee limit from $1,500 per month to $3,000 per month as of March 26, 2026.
• Pension plans will be able to offer a new option for retirees of defined contribution registered pension plans called Variable Life Benefits (VLBs).
• The Province of Ontario is expanding the types of investments a pension fund can make in Ontario to include investments in the Protect Ontario Account Investment Fund and nuclear energy generation.
• Funded non-pension benefit plan administrators or trustees will be permitted to elect to defer the Insurance Premium Tax until benefits are paid out of the plan (instead of when contributions are paid into the plan).

Pension announcements

Discharge of missing member liabilities

Missing pension plan members can pose a significant administrative burden on plan administrators, both in terms of time and cost. The Budget proposes a path to eliminating the liabilities associated with missing former members and retirees who are at least 100 years of age, if certain requirements are met. The Budget indicates that plan administrators will be required to conduct additional searches for these members and then serve a prescribed waiting period, after which time the administrator could apply for a discharge.

Bill 97 proposes to amend the Pension Benefits Act (Ontario) (PBA) to permit the plan administrator to apply to the Chief Executive Officer of the Financial Services Regulatory Authority of Ontario for the discharge. If the prescribed requirements are met and consent is granted, the former member or retiree will cease to have any right to benefits under the plan or the PBA. The value of discharged defined benefit entitlements would remain in the pension fund, and the value of a defined contribution account may be reallocated in a manner to be prescribed.  

These amendments will come into force on a day to be named by order of the Lieutenant Governor in Council. Proposed regulations setting out the “prescribed requirements” to receive this consent have not been released.

This initiative may provide some welcome relief for plan administrators struggling with missing members. We continue to monitor for regulations needed at the federal level to implement a method for wound-up federally regulated pension plans to transfer their unclaimed pension benefits out of the plan to a holding entity, which could one day be extended to provincially regulated plans. Industry organizations also continue to advocate for modifications to the Income Tax Act (Canada) (ITA) and Canada Revenue Agency policies that could also assist with the management of missing members.

Full unlocking

Once an employee terminates their membership in a pension plan, they may be provided with the option to transfer their pension benefit into a “locked-in account” that is offered by a financial institution (e.g., a life income fund, a locked-in retirement account, etc.). Since these accounts are “locked in”, the funds cannot be withdrawn before retirement, except in special circumstances (e.g., financial hardship).

The Budget proposes to allow full unlocking for:

• account holders who have reached the early retirement age under the terms of the pension plan (often this will be age 55, but it could be age 50 in some plans); and
• account holders who are under the age of 55 and whose total balance in the locked-in account is less than 40% of the Year’s Maximum Pensionable Earnings ($29,840 in 2026).

The expanded unlocking rules will not apply to benefits and assets that have not been transferred out of the pension plan fund.

These rules will likely be implemented through amendments to the PBA regulations.

Amendments to the Pension Benefits Guarantee Fund

The PBGF is an Ontario-based fund that provides some protection for beneficiaries of a single-employer defined benefit registered pension plan (DB SEPP) in the event of employer bankruptcy where the pension plan assets are not sufficient to make the required pension payments. The PBGF is financed through annual premiums paid by the sponsors of DB SEPPs and any income earned from the investment of the fund.

As announced in the 2025 Ontario Economic Outlook and Fiscal Review, the Ontario government conducted a review of the PBGF, which revealed an overall decline in DB SEPP membership and an increase in the number of DB SEPPs that are closing. As of March 31, 2025, the PBGF had $1.3 billion in net assets. Given the PBGF’s financial status, the Ontario government is proposing to double the pension guarantee limit from $1,500 per month to $3,000 per month on and after March 26, 2026, without increasing employer premiums. Bill 97 includes proposed amendments to the PBA to facilitate this increase, which will come into force on the day Bill 97 receives Royal Assent.

It is unclear whether the Ontario government considered the ongoing relevance of the PBGF in light of Bill C-228, the Pension Protection Act, which provides super-priority status to unfunded pension liabilities during insolvency. It is also unclear whether PBGF premiums are now less likely to decrease in the future as a result of the increase in protection.

Additionally, the Budget indicates that the Ontario government will consult on the development of regulations to the PBA that will eliminate any PBGF premiums to be paid by sponsors of DB SEPPs that are working to consolidate with jointly sponsored pension plans (JSPPs). The suspension of premiums would likely apply while the merger is awaiting regulatory approval and may require plan beneficiary consent.

The development of Variable Life Benefits

The Ontario government is proceeding with legislation to offer a new option for retirees of defined contribution registered pension plans or pension plans with additional voluntary contributions called VLBs. Known under the ITA as the “Variable Payment Life Annuity”, VLBs help to protect retirees from outliving their retirement savings by providing a monthly benefit designed to be paid for life, but the amount can fluctuate based on factors such as the fund’s investment return and the mortality experience of the member pool. This option can be more cost-effective than other retirement income-producing options as it allows risk and cost to be pooled among participants.

Bill 97 amends the PBA to define what a VLB is, add references to VLBs throughout, and establish rules respecting voluntary contributions, death benefits, wind-ups, and transfer conditions. These amendments will come into force on a day to be named by order of the Lieutenant Governor in Council. Proposed regulations that prescribe the requirements, conditions, and any variations in the benefit provided under the VLBs will undergo stakeholder consultations, which are planned for later this year. The Budget states that the government is targeting January 1, 2027 as the date when eligible plans could begin to offer VLBs.

It is likely that a VLB component will be appealing only to larger plans who have a sufficient number of retirees electing the VLB to support a risk pool and the related cost of running the VLB component.

Attracting pension fund investments in Ontario

The Ontario government proposes to establish the Protect Ontario Account Investment Fund (the Fund), a commercial market fund in which Ontario will invest up to $4 billion and act as a “significant investor”. Capital will be deployed by an independent, private-sector general partner, with the Province of Ontario as a limited partner. To help advance and diversify Ontario’s economy, the Fund will invest in high-growth industries such as artificial intelligence, defence, advanced manufacturing, life sciences, biotechnology, and research and development in the critical minerals sector. The Budget indicates that pension funds and other private capital investors will be provided with the opportunity to invest in the Fund.

The Budget also notes that a key priority is advancing Ontario’s nuclear expansion and nuclear energy generation. As nuclear projects are complex and capital-intensive, the provincial government is exploring the creation of equity partnership opportunities and ownership models to unlock private sources of capital, such as pension funds and other institutional investors, to help advance Ontario’s nuclear generation projects.

Benefits announcements

Insurance Premium Tax flexibility for non-insured benefits plans

The Corporations Tax Act (CTA) imposes an Insurance Premium Tax on non-pension group benefit plans based on how the plan is funded. A benefit plan is considered to be funded when the contributions paid into the plan exceed the amounts required for the payment of benefits that are foreseeable and payable within 30 days. A funded benefit plan must pay the Insurance Premium Tax on taxable contributions at the time when such contributions are paid into the plan, resulting in an upfront tax liability. In contrast, an unfunded benefit plan only pays Insurance Premium Tax as benefits are paid out.

Bill 97 proposes to amend the CTA to permit funded benefit plans to elect to be treated like unfunded benefit plans, such that the Insurance Premium Tax will only apply once the benefits are paid out of the plan (instead of when contributions are paid into the plan). These amendments will come into force on April 1, 2026. The amendments suggest that the regulations may restrict which types of benefit plans may make the election.