If you need to cash out your pension you could get way, way less thanks to the UCP

Buried in legislation that was passed last fall by the UCP is a provision that means people will see far less cash from their defined benefit public sector pensions if, for whatever reason, they leave or cash out their pension.

The changes, which apply to the Local Area Pension Plan, Public Service Pension Plan and the Special Forces Pension Plan take effect on April 1, 2019 and mean that when someone cashes out their pension plan the value of what they are entitled to is dropping by 25 to 60 per cent based on analysis sent to Progress Alberta. 

Greg Meeker is the former Board Chair of the Alberta Teachers Retirement Fund and while the ATRF isn’t affected by these changes Meeker is a vocal critic of the Alberta government's handling of the pension file.

“This was never debated, it was just thrown into a huge bill and it has drastic real world effects. It’s important people are aware of it so people know what their choices are. This kind of fact gets buried. This might derail a life decision you’ve made,” says Meeker.  

Despite the COVID-19 pandemic Jason Kenney and the UCP passed their 2020 budget which will mean thousands of layoffs of workers in the public sector. Pension plan members needing money in the short-term might be forced to cash out the pension just to survive and these actuarial changes mean they will receive far less money.

These changes were noted on the Local Area Pension Plan website in a Q&A and in the Alberta Federation of Labour report titled Don’t You Dare! Why working Albertans don’t trust Jason Kenney with their retirement savings published on February 19, 2020. 

“Bill 22 also makes important changes regarding the ability of pension plan members to leave their pension plans. The first change is how commuted values are calculated. Commuted values are the lump sum payments that members, or their beneficiaries, can withdraw from the plans upon employment termination, possibly retirement and the death of a pension plan member.”

Meeker laid out some scenarios for how this might affect people who are a part of the affected pension plans. 

“If someone passes away their spouse is entitled to their pension. That money doesn’t just go back into the pot, it’s paid out to the surviving pension member’s partner, as it should. Due to an actuarial change they’re likely to see far less.”

“Or let’s say you work for the government of Alberta and you’re vested for a pension. Imagine you’re 40 years-old and then you leave and go work in the private sector where there is no pension. One of the scenarios is to cash out that pension and put it into an RRSP. Your other option is to receive a partial pension at 55 or 65. But what if you need money right now? What if you become disabled and you need to access that money? Those people are going to get far, far less,” says Meeker. 

When discussing pensions it’s always important to centre the fact that the money in these pension funds represents deferred wages earned by workers that have been invested in order to provide an income to those workers when they are no longer able to work. The money in those pension funds belongs to workers, not the Alberta government and Jason Kenney and not the pension fund manager, the Alberta Investment Management Corporation.

This change to pension cash-outs was part of a huge suite of changes made by the Alberta government to public sector pensions in the fall of 2019. This included transferring control of the Alberta Teachers Retirement Fund to AIMCo over the objections of teachers and removing the ability of pension plans to leave AIMCo and have another pension fund manager manage their investments if they chose. 

Kenney has also publicly called for the Alberta portion of the Canada Pension Plan to be transferred to AIMCo as part of his proto-separatist “Fair Deal for Alberta,” campaign. AIMCo’s latest annual report is slated to come out in the next couple of weeks.