Saving for retirement is sound financial advice, but what if life throws a distinctly curved ball at us that strains our finances beyond the breaking point? Should we be allowed to access some of the money we’ve squirreled away over the years to cover unexpected medical expenses or avoid having our house repossessed due to financial hardship caused by conditions outside our control?
Money set aside in a pension plan is often locked in to guarantee funds will be available at retirement. Many Canadian jurisdictions have rules in place to allow early unlocking of benefits in certain circumstances and under particular conditions. The latest province to consider allowing it is Saskatchewan. The Canadian Bar Association’s Pensions and Benefits Law Section offered comments on its proposal to amend regulations to permit early unlocking of benefits in cases of financial hardship.
Noting that substantial unlocking “would undermine the principal policy objective of private pensions plans, which is to secure income to meet the needs of employees when they retire,” the Section generally supports “continued locking-in to ensure pension benefits that accumulate on a tax deferred basis are used for retirement income, subject to specific and enumerated exemptions.”
One such exemption is financial hardship, and the Section points out that unlocking rules currently exist in British Columbia, Alberta, Ontario, Nova Scotia, Newfoundland and Labrador as well as for federally registered pension-plans. These jurisdictions permit unlocking from locked-in accounts only, not directly from a pension plan.
In practice this means people in certain situations of financial hardship can only gain early access to retirement money that has been transferred from a pension plan into a locked-in retirement savings arrangement, such as a Locked-In Retirement Account or LIRA, in amounts that vary depending on their jurisdiction and the kind of financial hardship they find themselves in.
When it commented on a similar proposal to allow partial unlocking by the government of Newfoundland and Labrador last year, the CBA Section said it recognized “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.”
It repeated the same comment in the case of Saskatchewan, agreeing that the province should bring forward “a regime for financial hardship unlocking from locked-in accounts that is consistent with and not more expansive than existing rules in other jurisdictions across Canada. This approach allows financial relief in urgent cases and increases interjurisdictional pension legislation harmonization while maintaining the integrity of the province’s pensions system.”