Thursday, November 14, 2013

Pensions, Income Security and foot-dragging by the BC government

Dear Saanich South,

This Friday, November 15, at 10 am at the Cook St Activity Centre (380 Cook St), I will join the Leader of the Federal Official Opposition, Thomas Mulcair, as well as Members of Parliament Murray Rankin and Randall Garrison, at a forum to discuss pensions and income security for retirees. The event is free and open to the public.

I thought I might share a little of my research as I prepare.

According to BC Stats, 28% of Saanich in 2013 is over the age of 65. In 20 years, that percentage will rise to 37%!

This significant and rapidly increasing percentage reflects not only that Saanich is a destination for retirees and that baby boomers are entering retirement age, but also that seniors are living longer than ever before.

There are of course many implications of this trend.

Certainly, one is that we as a community need to save, plan and support this growing number of seniors to maximize their quality of life. Saanich has put out an excellent report on this challenge. It explores how we can make our community more “age-friendly”. (You can read the report here.)

Another implication is the necessity to look carefully at how our laws and regulations impact seniors and be prepared to make changes as required.

Let me give you practical provincial example of this that many seniors in Saanich are well aware of: restrictions on Life Income Funds (LIFs). Typically LIFs are locked-in RRSPs. 

“Locked-in” means that the funds must be used to provide a regular equalized income for life, usually as a monthly payment. These are often called life annuities and purchased from insurance companies. A person will pay into an annuity before retiring and then can draw from it once they reach a certain age.
The idea is that a person can purchase lifetime income security: the risk associated with the uncertainty of an individual's lifespan is transferred from the individual to the insurer. The insurer sell these to many of people thus reducing its own uncertainty.
These financial instruments can work well but problems arise when the monthly payouts are not enough to meet a senior’s immediate needs. Because they are locked-in, a senior can’t simply cash out the plan. This can create a terrible situation for a senior when they are forced into poverty even though they own significant funds in an annuity.

To redress this problem, many provinces in Canada have created a “hardship exception” so pensioners can “un-lock” their LIF. In Alberta, for example, seniors can access all of their funds in a LIF in situations of financial hardship. These include risk of eviction from a principal residence due to overdue rent or if the annuitant or his/her partner or dependent face medical expenses not covered by insurance.

British Columbia has no such exception! No matter how severe the financial hardship, seniors in BC are not allowed to cash out even a portion of their own savings if held in a LIF
I have a number of constituents that are suffering because of this flaw in the rules. (The applicable law is the Pension Benefits Standards Act of British Columbia).

In fact, one of my constituents is enduring severe financial hardship because of this and has been fighting to get this changed since 2006! In her case – and she is certainly not alone in this – the financial institution which sold her the LIF failed to explain to her that the annuity would be “locked-in”. It wasn’t until she needed the money that she discovered that she could not get at it.

Fixing this unjust rule would be simple and is uncontroversial but the BC Liberals have not done the work necessary to get it done. Their excuse is that they are making “comprehensive” changes which take a long time and they will not prioritize specific fixes. This rings hollow when we hear it from the government year after year after year – and when the implications are ongoing and unnecessary hardship for seniors.

The Official Opposition has brought this concern forward many times. For example, the Finance Critic brought the matter directly to the attention of the Finance Minister during the most recent Estimate Debates in the Legislature and pressed him on this exact point. (You can read their discussion in Hansard, here at 1550.)

I have also raised this issue with the current Minister of Finance on behalf of my constituents and I will continue to keep the pressure on. The government has assured us that we can expect change in 2014 and we will hold them to it.

There are many other important changes we need to make to support seniors as they enter the final decades of life and I look forward to discussing these with those interested and continuing to work for positive change on behalf of the seniors of Saanich South.

Warm regards,

Lana Popham