© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the August 2005 edition of BENEFITS CANADA magazine.
Pension Planning: Red tape redux
Regulators in Ontario have added needless red tape to the transfer of locked-in funds to retirement income. It’s time for a change.
By Glorianne Stromberg

THE REGULATORY BUREAUCRATS RESPONSIBLE FOR administering Ontario’s Pension Benefits Act(PBA) certainly were salivating on complexity when they produced their April 2005 policy statement concerning the Ontario Locked-In Retirement Income Fund(LRIF). It had taken regulators five years(the Regulation to the PBA was amended in March 2000) to do so.

The 18 pages of fine print that comprise the policy statement defy comprehension by ordinary mortals— once again thrusting plan members and LRIF providers into the hands of consultants and yet another maze of compliance with the attendant high costs that erode retirement income.

Why is this necessary? What possible policy objective can there be to have special rules for LRIFs that differ from an ordinary Registered Retirement Income Fund?

Why can there not be a one-line provision that allows any prescribed Locked-In Retirement Account(LIRA)to be converted into retirement income in the same way that non locked-in accounts can be?

Surely the public policy objective is satisfied when the LIRA is created. The LIRA is a form of retirement account that was designed some years ago to permit the portability of pension benefits when a former member of a pension plan terminates employment or ceases to be a member of the pension plan and is entitled to a deferred pension. Why then is it necessary to provide that the amounts held in a LIRA be subject to different rules when it comes time to convert it to a retirement income?

If the rules for converting all retirement accounts were the same, there would be no need to calculate the maximum annual income payment amount that must be paid out under an Ontario LRIF. This is a complicated calculation that takes two pages of the policy to explain and six pages of examples to illustrate. Eliminating this requirement would meet Ontario’s policy objective of reducing or removing complexity and red tape.

Another advantage of doing away with the special retirement income conversion requirements for Ontario LRIFs would be that the restrictions on the portability of an Ontario LRIF would disappear. This would be a benefit to retirees who move to another province of Canada.

Currently, an Ontario LRIF may only be transferred to a financial institution in another jurisdiction within Canada as long as the transferee institution administers it in accordance with Ontario’s pension legislation. The policy statement notes there are some significant differences among the provinces but does not identify what these differences are. Instead, individuals are advised to contact pension regulators or financial institutions in other jurisdictions for more information.

A restriction of this nature on portability is at odds with the basic constitutional right of Canadians that permits the free movement of people and goods from one province to another. The restriction also highlights the need to expedite the implementation of uniform pension requirements that apply throughout Canada to eliminate the significant difference to which the policy refers.

One has to wonder what possible justification there is for Ontario placing this onerous requirement on individuals? If there is some reason for the province’s paternalism, surely it would be better directed to harmonizing the LRIF requirements throughout Canada instead of adding costs and stress to its citizens to seek arcane advice from remote regulators and financial institutions.

The Ontario LRIF policy highlights the need for a fresh look at attitudes and legislation to simplify and streamline the procedures for paying out retirement income to those entitled to it without subjecting them to a lot of red tape, convoluted calculations and needless stress.

Glorianne Stromberg is the author of three reports on regulatory strategies, a securities lawyer and a former commissioner of the Ontario Securities Commission. gstromberg@sympatico.ca