Dear Rita Trichur,
My name is Grant Fleury.
I am with the Ontario Coalition of Independent LIF Holders, a
non-partisan group representing the interests of the estimated hundreds
of thousands of LIF Holders in Ontario. Our goal is to inform these
individuals of the current rules and regulations pertaining to their
locked-in funds and to thus lobby the government and political parties
to amend the current Ontario Pension legislation to allow 100% access
to locked-in pension funds at the earlier of either the normal
retirement date or age 55 and beyond as has been done in Saskatchewan
and to lesser and differing extents in other provinces in Canada.
I read your article with great interest as it certainly brings to light
the alarming reality of the incorrect perception of many
Canadians(Ontarians) of the belief they will have enough money to
comfortably retire on.
As you have duly noted from the report of the Canadian Institute of
Actuaries that there, in fact, is not enough money being set aside by
two-thirds of Canadians for their retirement years, there remains
another less written about subject that further compounds the dismal
financial reality of these future retirees.
Many of the people that were surveyed, no doubt, are in possession of
one or more forms of a locked-in fund known as either a LIRA, LIF or
LRIF, depending at what stage those monies are at in their transition
towards actual available dollars to the pensioner. Working to or past
65 will be, for most, the only option available in order to achieve
retirement independence if any of these type of locked-in funds are in
their retirement portfolio.
The reason I say this is simply due to the fact that although a
significant amount of people are in possession of these locked-in
accounts known as LIRA's, LIF's or LRIF's, most are unaware of the
highly restrictive rules and regulations they will face when they
expect to begin withdrawing from these accounts to supplement or
primarily fund their retirement years.
The message by institute president Normand Gendron "The message for
most Canadians in their early to mid-forties is they will need to save
more if they expect to enjoy an independent retirement," could and
should be amended to include or address the locked-in type of
retirement savings as a principle reason for having to work longer or
begin to save earlier and that those people who have LIRA's, LIF's or
LRIF's should be aware that they will be limited to a yearly access of
approx. 6.5% for LIF's or the market growth for LRIF's and thus had
better include this extreme limitation in their overall calculations to
toward their ultimate goal of financial independence upon retirement.
This information, or lack thereof, regarding LIRA's, LIF's or LRIF's is
grossly lacking in the general public and quite often is also not fully
understood by financial consultants or institutions' agents. Thus
owners of these type of locked-in accounts, more often than not, think
that when they reach fifty-five (55), they will have full unrestricted
access to their locked-in pension funds. They are shocked and outraged
when informed of these limitations as nothing could be further from
their perception than the archaic limits imposed by the regulators of
locked-in funds in Ontario.
Hence the statement "There is a gap between what Canadians are thinking
and what they are actually planning and saving." is in fact much larger
than the report suggests if some of these pension funds are of the
locked-in variety.
The statement "The problem is that boomers have neglected to save", is
not entirely the fault of the boomer. The real underlying problem is
the lack of disclosure by the large corporations and financial
institutions who have laid these people off over the last thirty or so
years, and failed to accurately inform them of the fallacy that the
settlements they receive in the form of locked-in funds are not as
useful as they are portrayed to be. Yes, they may seem large at the
time, but they are legislated to be doled out, at a non-linear rate,
over a period from 55 to 90 years of age where in fact the majority of
this money will never be fully accessible to the fund owner as less
than 1/2 of 1 percent of us will live to 90 anyway! The remaining
money, upon death, is immediately taxed at the beneficiary's taxation
rate since it is added to their taxable income for the year and heavily
taxed at a much higher rate. This more often than not repeated scenario
essentially results in a "worthless bag of cash" to the pensioner since
they will likely never see the bulk of their own money while alive and
a large and immediate tax grab for the government..
Unless the existing pension legislation is changed in Ontario, and
Canada for that matter, Canada's public pension system will be relied
on even further to supplement the shortfall of future retirees with
locked-in pension funds as a result of their paltry access.
"The government will provide you with a base support system that will
keep you just above the poverty line – but that's all," said Robert
Brown, an actuarial science professor at the University of Waterloo,
who worked on the study.
This is precisely one of the principle reasons why we, the Ontario
Coalition of Independent LIF Holders, are advocating the abolition of
the restrictions regarding the limits to access of these locked-in
funds and thus allow the owners full 100% access to their funds upon
reaching the qualified age. In conjunction with CARP, and a number of
other well known and highly regarded and respected individuals in the
field of economics, we are currently and vigourously pursuing the
political parties, including the current Liberal party, to remove these
restrictive limits and provide full access as was done for all
residents in Saskatchewan a few years ago and was also done exclusively
for 61 MPP's in Ontario in 1999 via a special discriminatory amendment
for sitting members of the legislature contained in Bill 27(1999). We,
the remaining Ontarians, are insisting on equal and fair treatment as
was afforded the 61 MPP's in 1999 when they exclusively legislated
themselves a 100% unlocking privilege when their pension plans were
also previously wound up and they too were subsequently left with
similar locked-in pension plans.
All of the findings that you have pointed out in your article are in
fact worse than they appear to be on the surface if some of the pension
ear-marked money is of the locked-in variety.
As I've stated earlier, most people surveyed by our group, are unaware
of the restrictions to access they will face when they begin to
withdraw and are shocked when they are referred to the FSCO and the PBA
in Ontario to determine these extremely low percentages for withdrawal
rates and restrictions that they are being limited to.
The statement, "According to Statistics Canada, about 9.4 million
households had some form of pension assets in 2005." again is important
to note that depending on which type of pension fund or account that an
individual owns will largely change the number of years each person
will have to either start to save earlier or work later to in order to
achieve that comfortable level of retirement that most of us are saving
for.
Defined contribution type pension plans are a way for companies to not
only slash costs but to put the onus on the individual to manage their
own retirement with the companies defined monthly contribution to their
employees pension regardless of the strength or performance of that
employee's respective company.
In addition to the statement, "The study also recommended that Ottawa
consider making interest paid on residential mortgages tax deductible,
as it is in the U.S., given the high percentage of Canadians who may
need some portion of their home's equity to provide adequate retirement
income.", there should also be a recommendation to eliminate the locks
on all locked-in pensions upon the qualified retirement date and thus
provide the entire population a greater access to their own retirement
money thereby allowing them the flexibility to greater managerial
control over their entire pension strategy and subsequent level of
financial independence.
Sincerely,
Grant Fleury,
Ontario Coalition of Independent LIF Holders
Sunday, June 24, 2007
Article in the Toronto Star
PM RITA TRICHUR; BUSINESS REPORTER
Two out of three Canadians expecting to retire in 2030 are failing to save enough money to cover basic household expenses in their golden years, says a new study released today by the Canadian Institute of Actuaries.
The report, “Planning For Retirement: Are Canadians Saving Enough?,” warns the greying baby boomer generation to either scramble to sharply increase their annual savings or plan to work past age 65 to avoid financial hardship.
"The message for most Canadians in their early to mid-40s is they will need to save more if they expect to enjoy an independent retirement," said the Institute's president, Normand Gendron.
"Governments need to provide Canadians with more education about the role that different savings vehicles can play in generating retirement income, and provide tools and incentives that encourage more households to save."
Canada’s public pension system is not intended to provide all the income needed for an independent retirement, the study said, noting it is only geared to replace about 40 per cent of gross income for households earning the average industrial wage, which was about $40,000 in 2005.
Canadians must act fast to build on this income through some combination of workplace pension plans, registered retirement savings plans, home equity and personal savings, it added.
In fact, actuaries determined a 40-year-old single person earning about $40,000 would need to save as much as 20 per cent, or $8,000, of his or her gross income every year for the next 25 years to cover necessary expenses in retirement. The study found that only a third of Canadian households are currently on track.
The study's findings stand in sharp contrast to a recent opinion poll by Pollara Inc. that found 55 per cent of Canadians aged 40 or older feel some level of confidence that they will have the financial resources to retire comfortably.
Those with retirement savings feel more confident, as do those with a workplace pension plan. Three out of four people surveyed said they plan to retire at or before age 65.
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