The federal government’s proposed framework for unclaimed pension balances is fundamentally flawed, according to the Canadian Life and Health Insurance Association.
In a letter to the department of finance, Ronald Sanderson, director of policyholder taxation and pensions at the CLHIA, said transferring unclaimed pension balances to a designated entity should be optional rather than mandatory.
“In our view, mandatory transfer of unclaimed pension plan balances to a designated entity serves no measurable public purpose,” wrote Sanderson. “It potentially reduces retirement income benefits through the elimination of investment returns and converts tax-advantaged, lifetime income payments with potential survivorship rights into lump sums that may be spent imprudently.
“The proposed regime thereby creates significant potential demands on federal, provincial and municipal governments for income, housing and social services supports by Canadian seniors whose private pension plan income benefits have been converted without their knowledge or consent.”
In the letter, Sanderson suggested instead that the government mandates reporting to a central register of unclaimed amounts and publishes via that register the name and community of last known residence for each individual with an unclaimed pension plan balance. He noted this option would allow those people to locate their missing money while at the same time reduce the risk of identity theft and the misappropriation of unclaimed balances.
“In effect, a designated entity would become a referral facility, through which individuals could identify potential entitlements, identify the source of such entitlements and then pursue recovery of those entitlements directly from the pension plan administrator or from a designated entity, in the case of a plan that has voluntarily transferred assets to that designated entity,” noted the letter. “Such a reference source, facilitated by a designated entity, would presumably complement processes adopted by plan administrators and their service provides to assist individuals in locating long-forgotten pension entitlements.”
As well, Sanderson noted that discharging the payment of claimed pension benefits by way of a transfer to a locked-in retirement account, life income fund or another registered financial vehicle would keep the goal of the original pension plan intact and offer claimants income options into their retirement.
“Providing investment returns for assets held by a designated entity, as well as charging appropriate cost recovery fees related to administration and distribution of plan benefits, would put consumers whose unclaimed pension balances have been transferred to a designated entity on an equal footing with those where the plan administrator has chosen not to transfer assets to a designated entity,” wrote Sanderson.