“The Liberal government’s plan to further unlock pensions could lead to even greater financial hardships and rob Newfoundlanders and Labradorians of their retirement security,” says Sherry Hillier, president of CUPE Newfoundland and Labrador. “Governments, not individual retirement savings, should be sustaining those in need during the pandemic.”
“Our shared public health emergency demands a fair, public response from our governments. We should not be making public policy decisions that unfairly shift this responsibility to individuals, particularly at the expense of their future retirement security,” says Hillier.
“The existing provisions of the Pension Benefits Act are reasonable and flexible enough to assist persons in medical need of their pension funds,” says Hillier. “The proposed changes are unnecessary and could do much harm.”
In presenting this issue to the public for comment, Government has failed to outline any of the negative outcomes which could arise for individuals from a further loosening of unlocking rules, such as:
- Individuals may not understand that their locked-in retirement funds have always been sheltered from tax and that any withdrawals will be subject to income tax.
- Funds in locked-in accounts are generally protected from creditors, but withdrawals from those plans are likely not similarly protected.
- Spousal benefits, survivor benefit entitlement and pension income splitting rules that are used in separation and divorce negotiations in family breakdown situations will be negatively impaired.
- Pension plan members who spend deferred pension benefits now, may negatively affect spousal benefits and shared pension benefits, and negatively effect dependent children.
- Serious conflict of interest issues may arise if financial advisors or financial institutions are given a legislated role in unlocking decisions. They are not always obligated to represent the best interests of their clients and may favour more unlocking, particularly if they are able to extract fees.
- Workers and retirees often experience financial strain during economic downturns, and financial markets and asset prices are similarly suppressed. By unlocking pensions during downturns, today’s lower market values will effectively be locked-in as cash is withdrawn.
- After the economic crisis, when markets rebound, these individuals will miss out on asset price gains. Their pensions will be worth much less than they are estimated to be worth today.
“We recognize the financial hardships faced by many in the province due to COVID-19; however, we do not agree that it is good policy to facilitate a process where individuals might resort to draining their retirement savings to sustain themselves during a public health crisis,” says Hillier.
The provincial government should advocate for increased federal social transfers, additional COVID-19 emergency funds, and access to federal borrowing guarantees and capacity to provide a critical backstop for Newfoundland and Labrador residents in this time of crisis.
COVID-19 is a shared, public crisis which demands fair, public solutions. CUPE NL strongly opposes the government’s choice to pursue pension unlocking as a public policy response to the pandemic.
Read CUPE NL’s submission to the Province at: https://bit.ly/38A6PDd.