Manitobans, especially seniors, are pleased with their partial victory to earn increased access to locked-in pension money. The Manitoba Legislature is expected, with little opposition, to pass a bill early in 2005 that permits people with locked-in pension money to withdraw half of their money (either in cash or as a transfer to a non-locked-in investment). This permits more flexibility compared to the current legislation that extremely restricts how much an individual can withdraw from locked-in funds on an annual basis. The withdrawal restriction generally begins around 5% and marginally increases with a person’s age and with any increasing account balance.

Saskatchewan permits 100% access to locked-in funds, but only after age 55. Alberta is likely going to follow Saskatchewan’s legislation.

The Brandon District Labour Council relayed its concerns that “allowing people to move half of their pension out of the pot will weaken the plan for other members and leave people in financial jeopardy.” It is debatable whether people will abuse their increased access to their own dollars (and some may wonder why it is anyone else’s business) but the proposed legislation will definitely never result in a “weakening of the plan”.

There are generally 2 kinds of pensions that people may have: Defined Benefit and Defined Contribution. Both are structurally different and involve different levels of employee involvement and input. However, upon retirement or termination, employees are already permitted to “withdraw their funds from the pension plan” and manage it on an individual, locked-in basis. This has never resulted in any excessive “plan weakening”. What people must understand is that current pension legislation is, and always has been, a paternalistic mechanism designed to control access and use of personal financial resources.

In other words, governments don’t trust citizens to look after their own money. This blatant paternalism goes beyond the scope of caring for citizens most in need and who have limited resources. This pension legislation makes Manitoba less competitive and less attractive for external investment.

D’Arcy Barker Money Management Counsel produced a White Paper in 2003 recommending to the Province of Manitoba Pension Benefits Act Review a balanced approach of retaining existing rules for ages prior to age 55. After age 55, the recommended formula for withdrawals for locked-in money would be:

a) Age 55-60…8% of January 1 balance
b) Age 60-65…10% of January 1 balance
c) Age 65-70…13% of January 1 balance
d) Age 70-80…15% of January 1 balance
e) After age 80…20% of January 1 balance

With 4%-5% return for the locked-in funds’ investment, the aforementioned structure would exhaust the funds between ages 84-87. This structure contrasts with current pension legislation which extends the life of the investment well beyond reasonable life expectancy for the individual. Current legislation is neither prudent nor responsible.

D’Arcy Barker is a Chartered Financial Planner and Registered Employee Benefits Consultant. The Office of D’Arcy Barker Money Management Counsel is located at Suite 208- 740 Rosser Ave., Brandon, MB R7A 0K9 (204) 725-7221

www.barkermoney.com

E-mail: ReduceYourTaxes@barkermoney.com