Alberta’s LAPP ending coordination option due to pension member confusion

Alberta’s Local Authorities Pension Plan is cancelling its coordination option, citing regret and confusion from plan members who mistakenly accessed the feature without fully understanding the financial implications.

According to a statement by the LAPP, coordination will be discontinued for members who start their pension on or after Jan. 1, 2021. It noted the option’s elimination will have no financial impact on the plan.

Originally intended for individuals with a shortened life expectancy, coordination allows plan members to receive a temporary increase to their pension until they turn 65, after which the increase is removed and the pension is reduced permanently.

Phil Rivard, vice-president of pension policy and funding at the LAPP, says the decision was made following several years of complaints and concerns by members who mistakenly took the option, in some cases out of a desire to front-load their pension.

And with pension unlocking provisions now included in Alberta’s Employment Pension Plans Act, there’s little reason for the LAPP to continue offering coordination, according to a statement from the plan.

“The theory of coordination makes a lot of sense, but the issue we run into is that reality isn’t always consistent with theory and there’s several members who never understood the implications properly,” says Rivard.

“There’s also a lot of individuals driven by short-term income needs and they looked at it as a way to receive the highest payment level at retirement. They ended up seeing a significant drop in income at age 65 and that’s very difficult to deal with.”

Sheri Wright, vice-president of stakeholder relations and communications at the LAPP, says that, while confusion over coordination is the No. 1 concern expressed by members, she suspects there are many more who may regret their decision yet remain silent.

“There’s lots of behavioural economics out there, with respect to people making decisions related to their own financial gain. What it teaches us is that people often choose what’s right in front of them and looks really good, but it isn’t always the best choice.”

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