Posted by: Kiersten | February 1, 2010

Just whose money is it, anyway?

I had a meeting with an investment consultant about my locked-in pension.  Since I can’t touch it for another 30 years it may as well be growing, right?  That’s the magic of compound interest.

Except when provincial laws prevent you from ever touching your investment.  I had just assumed that once I retired, I’d be able to pull out whatever money was there.  Not so – I would be allowed only a small percentage per year, starting with about $3,000 when I turn 55.  If I live to 90, I could be seeing up to $9,000 per year, but in no way will I ever live long enough to reap the benefits of investing this money wisely because I will never be allowed to withdraw the funds at will.

This is not a lot of money we’re talking about, this is not a “win the lottery and live off the interest” scenario.  When the investment consultant outlined the scenario for me, I was just appalled.  “I’ve been robbed of my money by this mandatory group pension plan that I had to participate in if I wanted the job, and now that I’m no longer with this employer, I still can’t touch the money.  I will have to live to be 75 before I even get back what’s been taken from me and that’s not beginning to pay the interest I could have accessed if this was not locked in.  This is just criminal.”

Locked in pensions were never designed to assist people in their retirement – don’t let anyone ever tell you so.  They were designed to make large investment firms a LOT of money.  Their function is to take your money, keep it forever and send you statements with big numbers that will never translate into big numbers in your bank account.  Ever.  No matter how long you live, you will never be able to touch more than a teeny fraction of what “your account” is worth. 

And what happens when you die?  Well your beneficiary gets your plan, but how much and for how long?  I haven’t found an answer to this question yet, but I’m pretty sure that my beneficiary wouldn’t get to touch the principal or the bulk of the interest either.  In some cases a surviving spouse would only get a percentage of the tiny percentage I was getting, say 60% of the 5% I was getting for the ten or twenty years between my retirement and my demise.  If my beneficiary is a young relative, how long would s/he get to collect on it?  I’m sure there must be time restrictions somewhere, and I’m sure, at the end of the day, that Sunlife or Manulife or Merryl Lynch or whatever company gets to manage my money, charge me hundreds of dollars a month for the privilege of investing with them, they get to make money off of investing my money and they get to keep my money in the end.

How in holy hell does this make sense to anyone?  How is this a reasonable retirement income strategy?  How did this ever get to be law?? 

The investment consultant actually agreed with me.  She knows we’re trying to start a business and said it was obvious this money would be of more use to us now than it ever would in retirement.  This is why I love the credit union – they pay their employees enough of a salary that they’re able to spend time on what’s good for the client, and not try and push them into a ten year investment strategy that would not help the client, but would allow the employee a nice bonus.

We’re driving into Port again this Saturday to meet with her after we’ve both done some more research about unlocking these locked in funds.  Such a tricky balance… If I get the accounting job this week and it pays too well, I won’t be able to plead “financial hardship”.  But I learned that as long as I’m expected to earn less than $30,000 I might be able to get some of it out.  Maybe I could get more for “first and last month’s rent” since we’re moving soon, and maybe a bit more to put against my debt.  Every little bit helps. 

One thing’s for sure:  If I didn’t get the job this week I’d still be able to get into the self-employment program and I would have a good case at getting my funds unlocked… but in the long run it doesn’t make sense to turn down a job.  Our business will be a barely-paying-for-itself operation for two years, and having a steady source of income is going to make a huge difference.  The self-employment subsidy would run out for Kat & I at the same time after just a year, putting us in a pretty vulnerable position – at least a job is solid income that will be more likely to support us for these first few coin-rolling, bathtub laundry years.

I’ve decided that regardless of whether I can unlock any funds or not, I’m not going to invest this money with any institution that benefits from pension hijacking employee robbery.  I’ll keep it in low interest GICs and bonds with the credit union and re-invest them every year.  This way if the laws change, which they’re sure to do as the baby boomers lean heavily on the Canada Pension Plan, I will be able to access my funds without any investment contracts in the way.  I refuse to participate in a system that doesn’t benefit me; if I can’t have my money I’m not going to let investment firms make money off of it.

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