The Canadian government is “thinking outside of the box” with its proposal to extend the Bank of Canada’s program on dormant bank accounts to include unclaimed pension plans, says Kathy Bush, interim vice-chair of the national policy committee at the Association for Canadian Pension Management.
Last June, the government launched consultations around whether it should tax and reduce interest paid to unclaimed pensions of federally regulated terminated plans. The pension industry is now waiting to see whether the proposed plan will go through.
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Plan administrators definitely welcome the proposal because they’ve dealt with the issue of unclaimed accounts and missing plan members for so long, says Bush. The industry has a real problem with unclaimed pension funds, especially those that carry small amounts, she adds. “People lose track. They don’t take money when they leave [a company] or move.”
The trend is especially troublesome for plan sponsors that are trying to wind up their plans and distribute the monies, says Bush. While they can offload the unclaimed pensions with large balances to insurers, they often find it difficult to discharge the accounts containing smaller amounts, she adds, noting insurers often don’t want to take on smaller funds because they feel the effort of searching for missing plan members isn’t worthwhile.
“So then [plan sponsors] are left trying to figure out a way to deal with it.”
The federal government’s proposal to give the dormant pension accounts to the Bank of Canada isn’t only creative but also effective, says Bush. The bank’s tool for helping Canadians search for missing bank accounts is easy to use and heavily advertised, she says. “People can search online for their name so there’s a higher likelihood they’ll find [their accounts].”
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The federal government already has a regime that deals with unclaimed balances with no hope of ever being reclaimed. Currently, the central bank retains accounts with balances of under $1,000 for 30 years and those with more than $1,000 for 100 years. After the waiting period, it releases the unclaimed monies into Ottawa’s general revenues.
In addition to taxing unclaimed pensions and cutting or eliminating interest paid on their balances, the government is also considering reducing the amount of time the central bank holds on to accounts with less than $1,000.
But in the meantime, the government should consider investing unclaimed funds in socially responsible causes, says Duncan Farthing-Nichol, manager of research and advisory at MaRS Centre for Impact Investing. The government can use some of the funds while making sure there’s still a sufficient amount for people to claim, he says.
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As of Dec. 31, 2017, the Bank of Canada carried $742 million worth of unclaimed bank balances, with more than 93 per cent valued at less than $1,000. It also paid out only $10 million to balance holders in 2017.
“There’s always going to be a large portion of money that’s never claimed by anybody,” says Farthing-Nichol, noting that idle accounts may as well be put to good use. In fact, the U.K. and Japan have already implemented regulations that allows them to funnel unclaimed accounts towards the social good, he says.