By Sheryl Smolkin
Read this article and comments on moneyville.ca
New rules announced in the Ontario budget may make it easier for you to get at your locked-in pension if you face financial hardship because you will be able to bypass the regulator and go directly to the bank to ask for your money. However the government intends to maintain the current stringent rules for allowing you to withdraw your funds.
The changes will definitely help the province’s bottom line because the unit of 12 full-time Financial Services Commission employees who currently administer the program will no longer be needed. But it may not do much for those seniors who have been lobbying for an end to locking-in of pension funds.
The proposed changes in the administration of financial hardship withdrawals from locked-in accounts will be included in new regulations under the Ontario Pension Benefits Act that will be initially posted for public consultation. The effective date of these new regulations is still unknown.
The current locking-in rules allow you to take out up to 50 per cent of your account when you transfer the money out of the pension plan. Then you have to wait until age 55 to tap into the balance and withdrawals are subject to annual limits. Withdrawals for financial hardship now permitted only by application to the regulator are limited to three general categories of low income, medical expenses and housing expenses.
Yet the majority of Canadians who do not have employer-sponsored pension plans save for retirement in RRSPs, TFSAs and other unregistered accounts that subject to any tax penalties, they can withdraw at any time. Furthermore, it is expected that the new pooled registered pension plans that will soon be available to all Canadians will have no restrictions on employee withdrawals of their own contributions.
In 2002 Saskatchewan removed all post-retirement age restrictions on withdrawals from prescribed retirement income funds, but the Ontario government is still dragging their feet on this issue. When I spoke to the Saskatchewan Superintendent of Pensions Dave Wild last year, he said there are no provincial statistics on withdrawal rates but since these accounts were unlocked, he hasn’t had a single complaint from financial institutions or members.
Instead of simply shifting administrative responsibility for the financial hardship unlocking provisions, the Ontario government should take this opportunity to eliminate the financial hardship rules altogether. Former pension plan members should be able to to spend their own money when they need it most.