Spotlight on pension division: administrative fees
6 August 2020
By Kevin Zakreski
BCLI is running a public consultation (closing date: 15 September 2020) on pension division. It is asking for public input into its proposed changes to part 6 of the Family Law Act and the Division of Pensions Regulation. For information on how to participate in the consultation please visit the Pension Division Review Project webpage.
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
The existence of administrative fees raises the possibility that those fees could pose a barrier for some spouses to carrying out a division of pension benefits. Section 140 of the Family Law Act addresses this problem by a provision that enables an administrator to deduct the fee from the payment of benefits. Should this provision be strengthened, requiring the deduction of fees, unless they are otherwise paid by the member or the spouse?
Discussion of options for reform
This issue calls for considering either a new approach or endorsing the status quo.
The concern underlying this issue is that failing to pay the administrative fees can cause the pension-division process to grind to a halt, unleashing a host of problems for the spouses. That administrative fees may pose a barrier to completing the division of pensions is recognized in the current act, which allows an administrator to address the problem by agreeing to deduct the fees from the payment of benefits. An argument may be made that this provision, which turns on the administrator’s judgment, strikes the best balance in practice.
But it could also be argued that the current provision doesn’t really strike at the root of the problem, and hasn’t eliminated it. A more effective approach may be to make payment of the fees by way of deduction from benefits the baseline in each case, which one or both of the spouses may decide to depart from by directly paying the fees up front to the administrator.
The committee’s tentative recommendation for reform
The committee has concerns that administrative fees may continue to be forming a barrier to pension division in many cases. Raising administrative fees will likely exacerbate these concerns. In view of this, the committee favours implementing a new approach to the payment of these fees.
The committee tentatively recommends:
Section 140 (3) of the Family Law Act should be amended to read as follows: “An administrator must deduct a fee under subsection (1) from the payment of benefits, unless the member and/or the spouse otherwise pay the fee to the plan administrator.”