Daily News Alerts

To register for Benefits and Pensions Monitor's Daily News Alerts, click here

Pension division shifted to actuaries

British Columbia’s amended rules for pension division on relationship breakdown will shift the focus from lawyers to actuaries, says Kevin Zakreski, a staff lawyer with the British Columbia Law Institute.

Bill 17, which changes the Family Law Act, has received royal assent. Among other things, it is intended to modernize and provide greater clarity and guidance with respect to pension division in British Columbia. The amendments reflect the recommendations of the Pension Division Review Project Committee for the British Columbia Law Institute following its review of Part 6 (Pension Division) of the Family Law Act.

The institute, a not-for-profit law reform agency that engages in scholarly research and analysis of existing laws to determine pathways for law reform in the province, has had a long standing involvement in pension division on marital breakdown, dating back to its predecessor, the Law Reform Commission of British Columbia, a statutory body that carried out similar work in the province.

It recommended in the early ’90s, that BC not treat pensions the same as other family property which in those days was divided under the Family Relations Act, a court-based litigation process. The commission concluded then that the process did not work very well with pensions and a better approach would be to create a legal framework that would put in place a model for dividing pensions more fairly.

“Once you buy into that philosophy,” Zakreski said, “if you want to keep that model working, you have to update it from time to time because pension law and elements of family law change.”

The current changes came from a committee that identified areas it thought could be improved. “The report was very much evolutionary in nature. It wasn't a matter of completely changing the model, just fine tuning the details,” he said.

And the government picked up the bulk of what was recommended.

The broader changes include bringing locked in retirement accounts and life income funds into the process. Previously, they were not included in the pension division rules.

This came about because in British Columbia court cases, the issue of locked in retirement accounts was raised. The courts consistently said these were not part of the pension division since they weren’t mentioned in the legislation. The review committee concluded the locking in features made these similar to pensions. “You're really dividing a stream of payments here and it would be better if they were considered as pensions to get access to more sophisticated legislative tools for dividing these accounts,” he said.

There are a number of factors that make pension assets different from other marital assets. For example, there is the future pension. The contention is that the spouse feels that they should get a part of whatever their ex-mate is going to get in the future. The concern, going back to the original perception, was that “spouses failed to realize something because it was not tangible in the present, it's a stream of future payments. There was a concern that spouses were consistently undervaluing that,” he said.

This raised the concept that to really properly divide a pension was more of an actuarial matter. “Who do you trust to divide a pension more ‒ actuaries who deal with this regularly or family lawyers making arguments before a judge. If you build that actuarial foundation into legislation, which is essentially what we've done in BC, then don’t have to rely on lawyers just making the best rhetorical arguments,” he said.

The other thing is “if you look very broadly at the guiding principle of family law, it is to try to achieve some fairness between the separating spouses. But with a pension there is a third party to that relationship, the pension administrator. It was recognized that you can't cut out that administrator’s interest because they're representing all beneficiaries under the plan,” he said.

Also brought in were privately purchased annuities. So when someone purchases their own annuity, the thinking was that's like a stream of payments and they would be divided like a pension. “What we had heard is that doesn't quite work very well in practice when you try to work it through. It gets fairly technical, but when you're dividing a pension, there's a concept of pensionable service and taking that and trying to apply it to annuities doesn't really work,” he said.

The recommendation was for a partial lock back. If the annuity hasn't started making payments, it goes back into the general division of family assets. If a stream of payments has started, then pension division would be applied.

“We're going to probably start the process of nudging the law to create specific rules for these privately purchased annuities rather than what it currently says which is essentially it's just divided like a pension under the current law,” he said.

For details on these stories, visit www.bpmmagazine.com

• OCC calls for collaboration on mental health
• Equitable partners with Dialogue for virtual care
• CPP Investments acquires circular economy stake
• Resilient workforce examined at conference
• Brown rejoins Eckler