By Sheryl Smolkin
Read this article and comments at Moneyville.ca
Phillip James first contacted me earlier this year and I wrote about his quest to have his pension funds fully unlocked. He sent me a note again recently because he is furious that he had to take a bank loan to pay for unexpected house repairs although his wife has $70,000 in locked in pension funds.
James is only able to work part-time because he has progressive lung disease. He and his wife live primarily on their CPP, OAS and the maximum amount his wife can draw down from her locked in pension funds (LIF) each year (around $7,000). He is 65 and his wife is 74.
When he was diagnosed with chronic obstructive pulmonary disease, his doctor recommended that he spend as much of the winter as possible in a warmer climate because the cold further constricts his lungs.
In early 2011 he made a successful financial hardship application to the Financial Services Commission of Ontario to withdraw $3,000 from his wife’s LIF so they could afford three weeks in Florida. Although his situation is chronic, he had to re-apply to get funds released in 2012 for the same purpose.
“You’d think the rules would allow marking a file “chronic condition” so I don’t have to fill out five sets of forms, pay $25 for a doctor’s letter and re-apply every year as long as I live,” says James.
But to make matters worse, the couple recently found out that a minor earthquake several years ago cracked the main beam of the 160 year old Victorian farmhouse near Oshawa. Replacing the wood beam with a steel one plus fixing the roof cost $6,000, which was not covered by his home insurance.
Because his medical needs are paramount and only one financial hardship withdrawal is permitted each year, James and his wife cannot apply to FSCO to withdraw additional funds for the necessary house repairs. Therefore they were forced to take out a bank loan which they will have to repay with interest. The banks would not accept funds in the LIF as collateral.
I’m not surprised that he is upset. I would be too.
The majority of Canadians do not have employer-sponsored pension plans so they save for retirement in RRSPs, TFSAs and other unregistered savings accounts. Subject to tax penalties for early withdrawal, there are no constraints on when they can take money out of their RRSPs. Why should the rules for former pension plan members be any different?
In 2002, Saskatchewan removed all post-retirement age restrictions on withdrawals from prescribed retirement income funds, but Ontario has been reluctant to go the same route. When I spoke to the Saskatchewan superintendent of Pensions Dave Wild earlier this year, he told me he hasn’t had a single complaint from either financial institutions or plan members.
Saskatchewan’s economy is booming while the recent Ontario speech from the throne forecasted four more lean years. One way to keep more Ontarians off social assistance may be to give them unrestricted access to their own money when they need it most.
What do you think?