Unlocking locked-in pension funds

Pension plans exist to ensure that people have a pool of savings available in their retirement – and some retirement funds are “locked-in” until that time. Making these funds accessible to people before they retire would undermine the policy objective.

But when someone can’t pay their mortgage or is about to be evicted for rent arrears, it can be beyond frustrating knowing that the money is there, if only they could reach it.

That’s why the government in Newfoundland and Labrador is proposing to amend its Pension Benefits Act to allow a limited unlocking of benefits – only those monies that have been transferred from provincially registered pension plans to locked-in retirement savings vehicles.

The CBA’s Pension and Benefits Law Section was asked to comment on the proposed amendment. As a general rule, the Section says it supports the continued locking-in, “to ensure pension benefits that accumulate on a tax-deferred basis are used for retirement income, subject to specific and enumerated exceptions.” And in no case would it support the unlocking of funds directly from pension plans.

It does, however, support a regime for financial-hardship unlocking that is consistent with the rules in other jurisdictions.

The Section notes that Nova Scotia, Ontario, Alberta and British Columbia, as well as federally regulated pension plans, allow limited unlocking of locked-in accounts only – that is, Locked-In Retirement Accounts or Life Income Funds and not pension plans themselves – in cases of financial hardship. Depending on the jurisdiction, this can include low expected income, unexpectedly high medical or dental expenses not covered by insurance, risk of mortgage default or rent arrears, or to access money for first and last month’s rent. The maximum that can be withdrawn is dependent on the grounds for withdrawal and the needs of the individual.

“We recognize the importance of reforms to alleviate financial distress for pension beneficiaries who have not reached retirement age, particularly in light of the economic impact of the COVID-19 pandemic,” the Section writes. “We generally support the continued locking-in of pension benefits but accept the policy imperative to permit limited unlocking in cases of financial hardship.”

Doing so not only allows financial relief in urgent cases, it “increases interjurisdictional pension legislation harmonization while maintaining the integrity of the province’s pension system.”