Accessing locked-in retirement funds

Many of my women clients “of a certain age” have rather substantial pension nest-eggs, either through their employer’s pension plans or through their own business or professional practice. But they do share one problem. Their pension funds are tied up in Locked-In Retirement Accounts (LIRAs), and the conversation almost inevitably turns to whether that stash of cash in a LIRA can be accessed and put to better use. Well, there’s good news and bad news here.

A Locked-In Retirement Account (LIRA) is a special type of retirement fund designed to provide retirement income over your lifetime. Generally, locked-in company pension plans that you accumulate through your career are rolled over into a LIRA or Locked-In RRSP. These vehicles are governed by provincial regulations, which are pretty strict about the conditions for withdrawals.

The bad news is that, as the name suggests, generally you may not withdraw or transfer any money from a LIRA before maturity, unless it’s to transfer into another LIRA or a Registered Pension Plan. When you retire or by the end of the year in which you turn 71, at the latest, you may roll over the funds in your LIRA into one or a combination of the following options:

• An immediate or deferred life annuity. An annuity is a contract offered by insurance companies that provides a guaranteed income stream for the duration of the annuity. Rates, payouts, and durations vary widely and the choices and alternatives can be bewildering.

A Life Income Fund, or LIF (variations are available in Manitoba, Newfoundland, and Saskatchewan). A LIF is similar to a Registered Retirement Income Fund, except that there is limit on annual withdrawals as set out by the province of registration.

Unlocking is possible

The good news is that there are certain conditions under which you may access (or unlock) LIRAs. If the plan is federally regulated and has been converted to a LIF or locked-in RRSP, it may be possible to unlock the funds in certain cases.

One-time 50% unlocking

If you’re 55 or older, you may do a one-time transfer of 50% of the funds from a LIF into an RRSP or RRIF, with no effect on contribution room and no limits on withdrawals.

Financial hardship unlocking

In some cases you may be able to unlock funds where “financial hardship” is an issue. The criteria used for “financial hardship” are quite wide, and range from low income to medical expenses to home renovations to accommodate disability or illness.

Other unlocking provisions include having a small account balance (if you’re 55 or older with a LIF account value of less than 50% the yearly maximum pensionable earnings ($25,550 in 2013), being non-resident in Canada for two consecutive years (and you no longer work for the employer who originated the pension), and being certified by a physician for a shortened life expectancy.

Rules and regulations vary by province, so it’s prudent to check with your advisor if any of these apply in the province in which your LIRA is registered.

Retirement income planning can get complicated, especially for current or former members of pension plans who have significant commuted value to their pensions. Choosing the right maturity option for lifetime retirement income can be like navigating a maze of rules and regulations peppered by all sorts of hidden investment traps and tax pitfalls. Your best bet is to consult a qualified independent financial planner (that is, one who is not tied to selling a particular insurance or investment product).

© 2013 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited.

Accessing locked-in retirement funds was last modified: August 24th, 2015 by robyn