Submission to Ontario Ministry of Finance Re: Proposed Changes to Ontario's Financial Hardship Unlocking Regulations

Date de parution : 01/07/2013
Personne(s)-ressource(s) : Ronald Sanderson

January 7, 2013

Ms. Claire Woodcock
Senior Pension Advisor (A)
Pension Policy Branch
Ontario Ministry of Finance
5th Floor, Frost Building South
7 Queens Park Crescent
Toronto, Ontario
M7A 1Y7

Dear Ms. Woodcock:

Proposed Changes to Financial Hardship Unlocking Regulations

Thank you for your email of November 14, 2012 requesting our comments with respect to the proposed restructuring of the unlocking process due to financial hardship as it applies to amounts previously held within registered pension plans subject to Ontario's Pension Benefits Act.

The Canadian Life and Health Insurance Association (CLHIA) is a voluntary association whose member companies account for 99 per cent of Canada's life and health insurance business. The industry provides a wide range of financial security products, such as life insurance, annuities and supplementary health insurance, to about 26 million Canadians. Over two thirds of Canada's pension plans, primarily defined contribution plans for small-and medium-sized businesses, are administered by Canada's life and health insurers.

CLHIA supports efforts to streamline legislative, regulatory and administrative requirements as they relate to pension plans and amounts sourced in pension plans, and to harmonize such measures between jurisdictions. Such consistency increases transparency and intelligibility - and lowers administrative costs - for retirement plans, with significant resulting benefits for regulators, employers, service providers and, most importantly, consumers.

We are, however, concerned that the thrust of the proposed regulations may eliminate an important control mechanism within Ontario's unlocking regime, and lead to excessive and inappropriate unlocking of funds intended to provide retirement income security. A strong rationale continues to exist for Ontario to play a coordinating role in the approval of hardship unlocking requests.

Consistency Between Jurisdictions

Budget 2012 noted that the federal government has adopted a process whereby requests to unlock amounts are directed to the financial institution that administers an individual's account. While this is true, we note that other jurisdictions that permit unlocking continue to coordinate such requests through the applicable pension regulator. It is not clear to CLHIA members that the federal model appropriately balances preservation of retirement funding with individuals' current cash-flow needs.

Potential Abuse and Lack of Centralized Control

Our experience is that increasing labour mobility has led to the situation where many workers have participated in multiple pension plans. More often than not, an individual's termination of employment and participation within a given employer's pension plan does not lead to consolidation of any lump-sum entitlements arising from that plan with pre-existing locked-in accounts of that individual. Typically, individuals can have multiple locked-in accounts with a significant number of unrelated financial institutions.

This would appear to create material compliance difficulties where an individual is restricted to a single unlocking transaction with respect to each of the four proposed application criteria in a given year. While the proposed regime appears to contemplate the creation of a "safe harbour" whereby financial institutions can rely on information provided by an applicant, there would appear to be a substantial moral hazard that separate applications could be submitted to multiple financial institutions, each of which would administer a fraction of the individual's aggregate locked-in account balances. In effect, individuals could be incented to "sprinkle" locked-in amounts among a large number of financial institutions in an attempt to unlock more than the permitted limits. Absent a central entity to monitor and restrict such multiple applications, financial institutions have no way of preventing such multiple transactions.

We believe that this could lead to a significant abuse of the unlocking regime, and we question whether this would be consistent with sound public policy.

Applications Under Multiple Criteria

The proposals appear to contemplate an individual potentially making applications for unlocking due to financial hardship under each of the four proposed criteria at different times during a given year. Since the available benefit varies between the four proposed criteria, it is not clear how the maximum benefit available under each of the criteria might - or should - be restricted where benefits have been paid previously in the year under a different criterion. Absent such integrated limits, it would appear that an entire account could be unlocked, notwithstanding that the account held assets in excess of 50% of the YMPE for the year. For instance, separate claims for risk of eviction and medical necessity could result in the full YMPE becoming payable. This risk of excessive payment of benefits would be compounded by the use of multiple financial institutions as described in the preceding comments.

Even where such claims are made under a single account, the tracking of prior unlocking transactions imposes a potentially significant - and perhaps manual - record keeping requirement. Such functionality may not currently exist within financial institutions' administrative systems, since these have been designed to accommodate the current unlocking regime.

Consumer Disclosure Requirements and Confidentiality

The proposed application protocol appears to contemplate the provision of significant personal financial and/or medical information to financial institutions in support of any application for hardship unlocking. While CLHIA members have robust privacy protection processes in place, our experience is that many consumers are uncomfortable or unwilling to provide full disclosure of such information to commercial entities, perhaps in fear that such information may influence future access to credit, eligibility for insurance or other services. This reticence could significantly delay or absolutely prevent the processing of a hardship unlocking request.

Since the proposed regime contemplates an ability for a financial institution to rely on information supplied by an individual requesting hardship unlocking, it is not clear that the provision to the financial institution of such supporting information is actually necessary. Such reliance should enable the applicant to simply make an appropriate declaration as part of the application, while retaining supporting documentation in the event of audit. This would facilitate significant streamlining of the application and payment process.

Prescribed vs. Approved Documentation

CLHIA members believe that consistency for consumers is a key element of regulatory streamlining.

However, it is unclear whether the proposed regime, when discussing applications for unlocking and any other forms to be "approved by the Superintendent" is actually contemplating standardized and prescribed forms or a review process involving customized forms originated by each financial institution. We believe that standardized forms have significant merit in this regard, particularly since individuals are unlikely to seek advice in completing such forms. Prescribed forms would also ensure that spousal consent and disclosure re the non-exemption from seizure of amounts withdrawn would be communicated in a consistent manner.
Electronic Documentation

A further benefit of our recommendation regarding retention by the applicant of supporting documentation would be that this would facilitate the use of streamlined electronic declarations by applicants, thereby reducing the time and cost of processing of applications for hardship unlocking.

Medical Expenses

The existing criteria for approval of an unlocking application include, in the context of illness or physical disability, that benefits available under paragraphs 3, 4, and 5 of subsection 87(1) of Regulation 909 not be subject to reimbursement from any other source. It is not clear from the consultation paper whether a prohibition against reimbursement from any other source will be retained in the context of unlocking due to medical expenses or otherwise. Clarification of any continuing restriction in this regard would be appreciated.

Principle Residence Renovations

The proposed consolidation of unlocking criteria appears to eliminate the current criteria relating to household renovations or alterations to accommodate specialized needs due to illness or physical disability of the owner, his or her spouse or a dependant. Given the introduction of the Healthy Homes Renovation Tax Credit in Budget 2012, a narrowing of eligible criteria for unlocking to eliminate the financing of the renovation or alternation of a principle residence appears to be inconsistent. The rationale for such a restriction of the existing unlocking criteria is unclear, and explanation of the policy basis for this change would be appreciated.


Unlike administration systems applicable to the income payment phase of retirement products, systems used to manage amounts during the accumulation phase of locked-in accounts may not include logic to permit limited periodic payments prior to retirement age. Consequently, the inclusion of instalment payments within the required payment regimes for unlocking applications due to risk of eviction and medical necessity may result in additional cost and complexity of administration. This would be particularly true if any monthly instalments were for varying amounts.

Assuming equal instalments, it may be possible to transfer the present value of one year's monthly rent, mortgage or medical expenses to a fixed term immediate annuity in order to facilitate such payments. If variable payments are contemplated, then a parallel RRIF-based payment mechanism may be necessary, and consideration should be given to permitting such payment mechanisms.

The consultation document indicates that a minimum withdrawal limit of $500, net of withholding tax, would be retained. The consultation document does not appear to consider any fees that might be assessed in order to process any application or might, for instance, be contractually applicable with respect to the consequential premature sale of the underlying assets held with respect to the individual's locked-in account. Confirmation that such fees may be applied, and clarification of whether the $500 minimum limit is to be determined net or inclusive of any such fees, would be appropriate.

Thank you for your consideration of these issues. We would be happy to respond to any questions you and your colleagues might have in this regard. I can be reached by telephone at 416-359-2021, or by email at, to provide any additional assistance you may require.