Spotlight on pension division: LIRAs and LIFs
July 16, 2020
BY Kevin Zakreski
This post is part of a series that spotlights issues discussed in the Consultation Paper on Pension Division: A Review of Part 6 of the Family Law Act. To read other posts in the series please click here.
Brief description of the issue
Since the advent of the Family Law Act, case law has consistently held that locked-in retirement accounts and life income funds should be divided under part 5 of the act. Should the act be amended to change this conclusion, by providing that locked-in retirement accounts and life income funds should be divided under part 6?
Discussion of options for reform
This issue is essentially a choice between proposing amendments to part 6 or deciding to remain with the status quo.
The main argument in favour of amending part 6 to embrace locked-in retirement accounts and life income funds is that they are closely connected with pensions. The funds used to purchase them derive from a pension. Part 6 contains a suite of sophisticated rules that apply to the division of pensions, which can be extended to cover locked-in retirement accounts and life income funds.
On the other hand, there may be advantages to the status quo. It has been said that relying on part 5 “presents no practical problem for dividing benefits in these types of plans.” Moving to division under part 6 might create administrative burdens for providers of locked-in retirement accounts and life income funds.
The committee’s tentative recommendations for reform
The committee favours bringing division of locked-in retirement accounts and life income funds into part 6. In its view, part 6 contains a more comprehensive set of rules and will likely provide for a fairer result in most cases.
The committee tentatively recommends:
Funds in a locked-in retirement account or life income fund should be divisible under part 6 of the Family Law Act.
Moving division of locked-in retirement accounts and life income funds to part 6 naturally raises the question of which of the part’s rules will apply to that division. In the committee’s view, the principle that should guide the answer to this question is to apply the rules that would have applied to the pension benefits that were transferred to fund the locked-in retirement account or life income fund.
The committee tentatively recommends:
The rules applicable to the benefits under the transferring pension plan should apply to the division of the locked-in retirement account or life income fund.
