While the Association of Canadian Pension Management is urging the Newfoundland and Labrador government to introduce legislative amendments to facilitate pension unlocking in cases of financial hardship, it also suggests this move should include plan sponsors.
In response to the provincial government’s questionnaire on the topic, the ACPM recommended that locked-in retirement accounts, life income funds and locked-in retirement income funds be eligible for unlocking provisions.
In addition, it said unlocking provisions be permitted in defined benefit pension plans, an option not included in the questionnaire, with the caveat that this shouldn’t be an unfettered right, suggesting “any unlocking should only be if the sponsors to such plan amend the plan to permit any unlocking.”
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The association noted that unlocking under financial hardship is contrary to its general principle that funds remain locked in until pension plan members reach retirement age, but it also acknowledged the policy rationale for offering this exception. It also referred to other jurisdictions — British Columbia, Alberta, Ontario and Nova Scotia — which permit unlocking due to financial hardship.
“Therefore, this change would provide harmony with other jurisdictions, which would be supported by ACPM.”
The questionnaire also asked how often an individual should be allowed to unlock due to financial hardship, with the ACPM responding it should only be triggered by specific events. To the question of how much should be eligible for unlocking, the ACPM suggested 50 per cent to be consistent with other jurisdictions.
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Speaking further to consistency, the association noted it promotes the harmonization of locking-in rules to avoid unnecessary complexity. “Although unlocking provisions for financial hardships are not identical across the jurisdictions . . . , there are several general provisions noted in all pension standards legislation for British Columbia, Alberta, Ontario, Nova Scotia and the federal jurisdiction that Newfoundland and Labrador should strongly consider adapting to ensure harmonization.”
Specifically, these include financial hardship provisions related to rental or mortgage default, medical or disability expense costs and low income, generally defined as less than two-thirds of the year’s maximum pensionable earnings or three-quarters at the federal level.
“Incorporating these general categories into Newfoundland and Labrador pension legislation and aligning with other jurisdictions’ definitions of these terms allows for continued harmonization.”
The consultations on unlocking pensions ended Sept. 30, 2020. The Department of Digital Government and Service NL are currently in the process of reviewing the comments and feedback, which it will share on its website.
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