As of today, Newfoundland and Labrador has joined several other jurisdictions with financial hardship unlocking provisions. While the new provisions do not allow direct unlocking from pension plans, and not available to current employees in respect of the pension they are accruing, who terminates under the pension plan and transfers the value of their pension into an approved retirement savings arrangement (LIF, LIRA or LRIF), and who meets one or more of the prescribed requirements, will be eligible to apply.
In December, 2020, An Act to Amend the Pension Benefits Act, 1997, S.N.L. 2020, c. 30, passed in a single day following a consultation period. A corresponding regulation was issued January 15, 2021. The legislative initiative for these amendments arose by popular request from citizens of the province.
Unlocking criteria and amount
Once the employee has terminated, and transferred their commuted value out of their pension plan, an application for financial hardship unlocking may be made. Unlocking applications may only be made to the savings institution or insurance company that holds the retirement savings arrangement.
There is no minimum amount of an unlocking withdrawal. The maximum withdrawal, per reason for withdrawal, per year, depends on the reason for withdrawal as follows:
|Reason||Max. withdrawal amount|
|Low expected income (less than 2/3 of YMPE¹)||50% of YMPE minus 75% of total income|
|High medical expenses or disability related expenses (unable to pay)||Amount required to cover expenses for the 12 months prior to and 12 months following submission of application|
|Mortgage default||Amount required to rectify default|
|Rent arrears||Amount required to pay arrears|
|First month’s rent and security deposit to secure principal residence (unable to pay)||Amount required to pay first month’s rent and security deposit|
Comparison to other Atlantic Provinces
Despite having been patterned after Alberta and British Columbia legislation, the Newfoundland and Labrador unlocking provisions are also very close to those already in place in Nova Scotia. There are a few notable exceptions:
- There is no minimum withdrawal amount for financial hardship unlocking in NL, versus a $500 minimum in NS.
- Applications in NL are made to the financial institution holding the retirement savings arrangement. In Nova Scotia, the Superintendent’s consent is required. The applicant must sign a statement that they understand the impacts of making the withdrawal, and obtain the principal beneficiary’s consent.
- Inability to pay first month’s rent and security deposit to secure a principal residence can qualify as financial hardship (this is not available in Nova Scotia, but is in Alberta, British Columbia and Ontario).
- Inability to pay “disability related expenses” can qualify as financial hardship. No other province in Canada explicitly has this option. Although no definition of “disability related expenses” is given, the applicant is required to provide receipts and estimates, as well as a prescribed medical practitioner’s confirmation that the expenses are required. Applicants may claim for disability related expenses of a principal beneficiary or dependent.
New Brunswick pension benefits legislation does not permit unlocking financial hardship unlocking, nor are we aware of any government plans to add such a provision. Unlocking is available on a one-time basis, subject to certain criteria unrelated to financial hardship.
Considerations for plan members
Any pension plan members seeking to unlock their pension should be advised to consider the facts and potential consequences. Active plan members are not eligible for unlocking, and deferred members are not assured to be eligible. A deferred member must terminate under their plan and complete a transfer to an approved retirement savings arrangement to be able to then apply for unlocking. Once this action is taken, it may be difficult (in many cases, impossible) to reverse – even if it turns out the person does not meet the unlocking criteria.
Although the government requires a signed acknowledgment of potential impacts prior to unlocking, it does not address the action of transferring a pension entitlement to a retirement savings arrangement in the first place. For example, investment income from the retirement savings arrangement may not be sufficient to provide retirement income matching that under the pension.
Considerations for plan sponsors and administrators
Plan sponsors and administrators in Newfoundland and Labrador, as well as other jurisdictions, can expect a continued increase in inquiries from plan members about accessing their pension. This provides an opportunity to further educate staff and plan members about the locking-in of funds in pension and other retirement savings plans.
¹ Year’s Maximum Pensionable Earnings under the Canada Pension Plan.
This client update is provided for general information only and does not constitute legal advice. Stewart McKelvey is here to help with your labour and employment needs. If you have any questions about the above, please contact a member of our Pensions and Benefits team.
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