This article was originally published in the Toronto Sun on January 23nd, 2010. To view their webpage, please Click Here
Ridiculous rules on locked-in retirement accounts mean seniors’ savings kept from them until age 90
Based on his economic record, how would you like Ontario Premier Dalton McGuinty dispensing your retirement funds?
How would you like his government and provincial bureaucrats preventing you from withdrawing those funds when you needed them?
What if you needed more of your own retirement money than the government allowed and you had to plead with its bureaucrats (the Financial Services Commission of Ontario) to get it?
What if they said “no” and, even if they said “yes,” charged you hundreds of dollars for the privilege?
What if McGuinty and other MPPs could access 100% of the same type of retirement fund of which you can only access 50%?
Bizarrely, all these things can and have happened to hundreds of thousands of Ontario seniors with locked-in retirement accounts, also known as life income funds.
These are created when an employee with a company pension plan in the public or private sector leaves before his (or her) normal retirement date. At that point, he can choose to put the current value of the pension into a locked-in retirement account, as opposed to waiting for a reduced, deferred pension from the employer when he reaches retirement age.
This happens increasingly today as more and more people are working for multiple employers over their careers, rather than just one until retiring with a full pension.
A locked-in retirement account is similar to an RRSP, except for one key difference. The rules to withdraw the money are far more restrictive.
You’re only allowed to withdraw a small percentage of your locked-in account annually, beyond 50%, starting at age 55. The account can’t be emptied until you reach 90, by which time, unfortunately, most people are dead. In that case, the fund goes to their beneficiaries, but surely they should be able to decide that for themselves, not the government.
The province argues its restrictions on allowing seniors to access their own retirement funds are necessary to protect them from themselves.
You know the argument — give the poor, old dears access to all their retirement money (less applicable taxes) and they’ll just blow it on Florida vacations, casinos and Ponzi schemes. Locked-in accounts, we’re told, also have the advantage of being protected in bankruptcies.
In other words, it’s the nanny state at its worst — the government mentality that says because a few people might screw themselves, we have to protect everyone from themselves, the vast majority of whom can manage their own affairs.
When will governments learn it’s not the state’s job to protect us from our money?
To be fair, McGuinty has been moving, slowly, to free up these funds — boosting the amount seniors, at age 55, can take out of locked-in accounts, without restrictions, from 0% when he took office in 2003, to 25% in 2007 and 50% as of Jan. 1, 2010.