A Message for the Ontario Liberal Party

A Message for the Ontario Liberal Party:

Please note that we are gathering support throughout Ontario to unlock 100% of locked in pensions at retirement for Ontarians. This growing ground swell of voters are well aware of the reluctance of the Ontario Liberals to unlock 100% of locked in pensions.

Prominent individuals that are supporting unlocking 100% of locked in pensions at retirement include:
(i) Professor Jack Mintz, an renowned economist with Rotman School of Management, U of Toronto
(ii) Malcolm Hamilton, an eminent actuary and principle of William Mercer, Toronto
(iii) Gordon Pape, a well known financial commentator

A copy of Jack Mintz’s article regarding “locked in pensions in Ontario” published in the Financial Post is copied below:


Unlock LIRAs:

Workers who change jobs get hobbled with inflexible locked-in accounts. It's time to end this nanny-state paternalism

Jack Mintz, Financial Post

Published: Tuesday, March 27, 2007

Compared with the United States, with its bewildering and complex array of retirement savings plans, Canada has a proud record of levelling the playing field between pension plans and Registered Retirement Savings Plans (RRSPs):

We ensure that similar rules apply to them and we make them transferable. Given the evolving labour markets, with people quitting jobs frequently throughout their career, and given our ageing population, our federal and provincial politicians deserve credit for reducing tax barriers to labour mobility and savings.

Yet, one important form of discrimination remains: the locked-in RRSP. It puts millions of pensioned employees at a severe disadvantage compared with RRSP holders who change jobs. Ontario's recent budget takes an initial step to correct this discrimination, but does not go far enough, especially when compared with some provinces that have done much more to remove this discrimination.

When a pensioned employee quits, a choice is made to keep money invested in the pension plan or to take out the money and invest it in a locked-in RRSP (either called Locked-in Funds or Locked-in Retirement Accounts, LIRAs).

The money cannot be accessed until a certain age, such as at retirement (this depends on federal and provincial pension legislation) and these funds must then be invested in a life annuity or Life Income Fund.

With the Life Income Fund, the investor draws out money subject to mandated maximum and minimum percentages of assets held in the plan. At the age of 80, remaining investments must be converted to an annuity (with 60% spousal benefit) or transferred to a Life Retirement Income Fund that allows the holders to manage their own money (but still subject to mandated withdrawal rules).

Unlike pensions, owners of employer and employee-funded RRSPs are far less shackled by their previous employer contract when they change jobs. The RRSPs can be cashed in any year without penalty, although the principal and accumulated income will be fully taxed, similar to pensions.

At the age of 69 (71 when the recent federal budget is implemented), the RRSP must be cashed out (and taxed), turned into an annuity or put into a Registered Retirement Income Fund (RRIF), of which withdrawals are taxed.

Compared with the Life Income Fund owner, who must hold an annuity or a Life Retirement Income Fund, the RRIF owner can take out as much as he wants, subject to a minimum percentage of assets.

Given these stringent rules, employees have a good reason to prefer RRSPs over pensions.

Defined-benefit pension arrangements have been used by employers to keep their workers on staff, since employer contributions are geared more toward the end of the employee's career, a policy that is becoming inflexible in a world where workers frequently change jobs.

Further, with employer responsibilities for liabilities and employee claims to surpluses upon wind-up of defined benefit plans, many companies have shifted to defined-contributions plans.

These operate like RRSPs in that the employee receives pension benefits based on the performance of invested funds provided by the employee or employer.

Nonetheless, with the locked-in rules for pension transfers, why even bother with a defined-contribution plan since employees could have the same risk and return, but much greater flexibility, with an employer-provided RRSP when changing jobs?

The usual argument against repealing lock-in provisions is a paternalistic one: Workers don't know what is best for them and will cash out their pension savings before retirement. This nanny-state view has been a basis for policy in some other countries, notably the United States, which has imposed penalties on early withdrawals from retirement savings plans.

Canada, however, has smartly avoided this trap by enabling individuals to have full access to their RRSPs without extra penalty for withdrawals before retirement.

Not only does this give greater flexibility for individuals, but also provides a significant incentive to invest in retirement funds, since individuals need not fear that their money is effectively locked up when facing unexpected contingencies.

Locked-in RRSPs are therefore particularly unfair to pensioned workers since they do not have the same rights to access their retirement funds.

With the recent budget, Ontario is proposing to allow individuals to unlock 25% of their funds no earlier than the early retirement date (usually 55 years of age), beginning in 2008, after consultations.

At this time, individuals can only access their own money if they show special need, once they follow a costly bureaucratic procedure.

According to the Canadian Association for Retired Persons, during the period of April, 2003, to March, 2006, almost 30,000 pensioners applied for relief, filling out a 23-page document costing anywhere from$200 to$600 when the application succeeded.

Only 52 were rejected outright, leading to wonder as to whether this bureaucratic process is necessary.

While the Ontario budget is a baby step in the right direction, NDP MPP Andrea Horwath proposed in a private bill, supported by Conservative Bob Runciman, to allow 100% access to locked-in funds.

This would provide similar treatment to that available to many MLAs, who are given access to their occupational pension savings.

Some provinces have gone much further than Ontario to relieve pensioners from onerous rules after leaving their employer.

Saskatchewan has been the most progressive province, providing for the full transfer of pension funds to RRSPs or RRIFs.

Alberta and Manitoba allow pensioned workers to access 50% of their LIF funds, although Manitoba will soon be moving to full access.

The only federal initiative so far in this regard is to unlock funds for federal employees at the age of 90 (we should all live that long!).

It is time to unlock the chains put on pension savings of employees who change jobs or retire. Doing so will help contribute to labour mobility, better retirement plans and, ultimately, a stronger economy.
- - -
- Jack M. Mintz is Professor of Business Economics, J. L. Rotman School of Management, University of Toronto, and Visiting Professor, New York University Law School.
© National Post 2007


Please consider unlocking 100% of locked in pensions at retirement for all Ontarians at retirement.

After all, it is their money. It is not government money.

Best regards,
Bill Nafziger

11 Whaley Ave.,
Box 94, Milverton
Ontario, N0K 1M0

Member:
Ontario Coalition of Independent LIF Holders
Common Front for Retirement Security (with over 2 million members in member organizations)
CARP, working together to unlock 100% of locked in pensions at retirement (with over 250,000 members in Ontario)

PLEASE NOTE:John Tory and the Progressive Conservative Party have endorsed 100% unlocking of pension funds (LIFs, LRIFs, etc.), 50% at age 55 and 50% at age 65.The NDP endorsed unlocking of pension funds as MPP Andrea Horwath introduced private members bill #175 to unlock 100% of pension funds.The Liberals offered a insulting 25% unlocking in their 2007 budget.