The business of Locked-In accounts is a pretty messy one because there seem to be so many different names for the same things, yet many also have subtle, but important, rules differences and regulations.
*Note see the comment by Webster Webb (below the post) for some good information – he is a retirement planning specialist and much more versed in locked-in accounts than I am.
WHAT ARE LOCKED-IN ACCOUNTS?
A locked-in account originates from being a member of a pension plan of a company (or government) that you no longer work for, and that relationship ended before retirement. Essentially, a locked-in account is where you hold the transfer of the value of your pension plan that you had accumulated. The pension can be either a Defined Benefits Pension Plan or a Defined Contribution Pension Plan.
When you start working for a company (or government) that has a pension, your pension plan "vests" (normally after 2 years) which basically means that the value in the plan belongs to you after that vesting period has expired. Instead of just getting a cheque when you leave their employ, you get some paperwork from your HR department asking you to transfer the funds into a Locked-In RRSP (LRSP) or Locked-In Retirement Account (LIRA). (Sometimes your new employer will have their own pension plan that can actually accommodate the proceeds of your old pension plan.)
Locked-In accounts get their name because the funds inside the accounts are essentially locked away and hard to access. They are designed to provide the same sort of benefit as the original pension plan – i.e. not accessible until retirement, and income provided for an extended period of time in retirement. Until retirement, you would hold the money in a LIRA or LRSP – which don’t allow for an income stream or withdrawals. Once you reached retirement, you would have to hold the money in a LRIF, LIF, or PRIF account which are all locked-in accounts with minimum withdrawal amounts.
LRSP’S AND LIRA’S
When you leave a job and you have vested pension funds accumulated you will normally transfer the value to either an LRSP (Locked-In Retirement Savings Plan) or a LIRA (Locked-In Retirement Account). Whether it is an LRSP or a LIRA depends on the jurisdiction the pension plan is registered under and that is pretty much the biggest difference between the two!
Side Note: Pension plans can be registered under Federal jurisdictions or Provincial jurisdictions.
The accounts are tax-sheltered just as with RRSP accounts, and you may also direct the investments inside the accounts as you wish. You may NOT withdraw the funds until you get to "retirement age" which is usually 55 (as low as 50 in Alberta) – Two Common Exceptions: you can prove financial hardship OR shortened life expectancy.
You can start withdrawing funds after converting the accounts into either an LRIF, PRIF or LIF – and the conversion must happen no later than December 31st of the year in which you turn 71.
(NOTE: There have been some recent proposed changes to pension legislation which affects how much you can withdraw and when. These proposals are not yet passed into law at time of writing and it is suggested that you check with your specific jurisdiction’s websites to keep up to date with the changes. A good resource for checking can be found here.)
LIF – LIFE INCOME FUND
There are only two main points: 1) You have maximum annual withdrawal amounts (a RRIF has no maximum) – which is designed to ensure you have an income for an extended period of time. 2) If your pension falls under NEWFOUNDLAND pension legislation, it must be converted to a Life Annuity at age 80. (In most cases you can withdraw all money in a LIF if you reach age 90.) Also, according to Webster Webb: "LIF income is stable and built on an amortization of the payout of the fund based on conservative interest rates."
LRIF – LOCKED-IN RETIREMENT INCOME FUND
Available to pensions registered under Manitoba, Ontario or Newfoundland Pension Benefits Acts. Again, according to Webster Webb: "LRIF income is based on actual investment returns which can be much greater but which is far more volatile. If you have to count on more than a RRIF minimum then an LRIF may leave you short of cash some years."
Other than that, they can be held indefinitely with no requirement to be converted to a Life Annuity at age 80.
PRIF – PRESCRIBED RETIREMENT INCOME FUND
Only pertains to pensions registered in Saskatchewan and Manitoba. Quite frankly, these are almost exactly like regular RRIF accounts as they DON’T have maximum annual withdrawal limits, only minimums. Once you have converted to a PRIF, you could take out all the funds if you wanted. There also is no Life Annuity requirement. The only difference is that your spouse is automatically designated as the plan’s beneficiary. This can be changed with written consent from your spouse if needed.
Credit is owed to Mr. Webster Webb for his comment below. The post has been revised according to his notes. If you would like more information on him, you can visit his website at: www.websterwebb.com.
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This article is wrong in some of its oversimplifications. Among other things the statement that the distinction between a LIF and an LRIF is only important in Newfoundland misses the point that a LIF income is stable and built on an amortization of the payout of the fund based on conservative interest rates whereas an LRIF income is based on actual investment returns which can be much greater but which is far more volatile. If you have to count on more than a RRIF minimum then an LRIF may leave you short of cash some years.
It is also not true that people end up in LIRAs and LRSPs only from leaving work pre-retirement. That is generally true for people getting paid out (either for leaving the pension plan or for family breakdown) early . However normal retirement from a defined contibution plan also requires either a locked in RRSP or a life annuity. This is the major source of Locked in RRSPs.
A much better source than this site for accurate and timely information would be the website of the governing jurisdiction’s pension commission. The ‘province’ of the pension is not necessarily whether the pensioner lived/lives – it is the jurisdiction that the pension plan was regulated under. for example the Manitoba Telecom Pension Plan is governed by Federal regulation – not Manitoba – so the Manitoba provision for a 50% unlocking does not apply for them.
Thanks for the comment Webster – I have added your comments and amended the post accordingly.
can a ex spouse post divorce transfer locked in RRSP’s to an ex spouse? Is it allowed under current tax laws.
I live in B.C. and have anLRSP
I am 65. What is the maximum withdrawal allowed?
Thank-you
Hello, While I was at University, I worked a job that had a pension component to it. Upon completing University I quit this job and have a different career. The pension component was placed in a LIRA, which I have moved around but kept invested. I am nowhere near retirement but wish to divest this money as I have debt up to my neck. Have the laws changed that might allow this today and what are the ramifications of doing so.
Thanks,
N.T.Dawood
hi there
what have you found out about taking that lira pension out…ps iam 55
Depending on the province your LIRA is legislated under, you may qualify for small-balance unlocking. Check with your regulator for details.
What is the maximum that can be transfered to a LIRA from a RPP. If you have more than the maximum in your RPP, what our your options?
At what age can u start withdrawing from a LIRA – I am now 55 and plan to retire in Newfoundland.
You must convert your LIRA to a LIF (or other locked-in vehicle such as an LRIF or PRIF) before drawing income. Typically the minimum age is 55.
Is there anyway for me to unlock my locked in RRSP in Newfoundland. I am 37 years old and had to declare bankruptcy a year ago- currently still in bankruptcy. I have a significant amout of money locked- which if allowed to access at the current moment would help me a great deal.I have tried several people with no answers- any hep on this would be appreciated- good or bad
@mariofaith I believe it changes depending on what type of pension you had before it became locked in, but for Federally locked-in funds go here: http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=1556
It has three forms that need to be filled out and information on whom to give them to.
I would be careful if you are undergoing bankruptcy proceedings however. Your registered retirement savings are protected from being taken, but if you remove the money it may be fair game for them to take.
I was told that i couldn’t unlock under financial hardship under Alberta jurisdiction. If anyone could comment with any help or info that would be great. So Ifinally find out after 4 years that my Plan is
provincially registered in Alberta, I trank and get the CRA registration number,xxxxxxx and provincial registration number, x – xxxxxxAlberta. I lived in newfoundland and worked in newfoundland but from time to time i did travel to Alberta for work. Now under Alberta Hardship- they tell me that I would not be able to apply because I fall under Newfoundland Jurisdiction. How is this possible- anyone please help
fggf
If Alberta provincial LIRA in one investment account … can I split it into three or four separate accounts and only unlock one account at a time to put 50% in RRSP and 50% in LIF, instead of unlocking the whole LIRA account at one time
Hi KK, is there a particular reason you would want to do that? (I’ll have to research the answer in the meantime).