Locked-in Retirement Savings Accounts

A lump-sum withdrawal or the commuted value of a defined benefit (DB) pension plan or funds held in a defined contribution/money purchase (DC) pension plan cannot be converted directly into cash. Any pension-sourced funds must be transferred according to the relevant legislation governing your employer’s pension plan.

When you do not wish to start an income stream immediately, individuals have the option of transferring funds into a locked-in retirement account (LIRA) or locked-in RRSP (LRRSP).
 

Under Which Regulatory Jurisdiction Do I Fall?

Federally regulated pension plans overrule provincial jurisdictions. Federal regulations cover plans of companies that are in certain industries including financial, transportation, and some types of mining and all federal government employees.

Money transferred out of federally regulated plans will transfer into an LRRSP. For provincially regulated plans:

• Your work location determines which province’s rules apply to your pension.
• If you move provinces but stay with the same employer, it’s the last province that matters. Most (but not all) provinces allow the entire pension to be regulated under the province you were working in at the time of retirement or termination.  
• Check with your employer’s human resources department if you are uncertain as to the rules governing your plan or situation. For further information on your pension jurisdiction, visit the Pension supervisory authorities page on the government of Canada website. 

Leaving a DC Pension Plan?  

Upon retirement or termination, you may have the option of leaving the money in your employer’s plan until you wish to start drawing an income. Do your homework. Determine if there is an advantage to do so, e.g., continuing access to low-cost investment fund management fees. (There may be a monthly administration fee to stay in the plan.) Alternatively, you may transfer the money out of the plan, to permitted retirement savings or income vehicle.

Can I Unlock Some of My Locked-in Money?

Benefits that are locked-in must be used to provide you with a retirement income stream when you retire, which means that you cannot withdraw money directly from your pension or LIRA or LRRSP before you retire. However, just because your benefits are locked-in, it doesn’t mean that your benefits must stay in the same account until retirement. Locked-in benefits may be transferred to locked-in retirement income vehicles or used to purchase an annuity at any time after retirement age and no later than the end of the year in which you reach age 71.

At the time of conversion, some provincial jurisdictions and the federal government allow a portion of the account balance to be unlocked, which could be either 50% or 100% depending on the jurisdiction. Unlocked money may be transferred (tax-sheltered) to a personal RRSP (you don’t need RRSP room to do this). Some provinces allow you to take it as taxable cash. The remaining funds must be transferred to a permitted retirement income vehicle to withdraw an income stream. Access to funds is restricted depending on the jurisdiction, age of the account holder and pension plan documents.

Small amounts may be unlocked and taken as taxable cash or transferred into a personal RRSP. Some provinces may allow a portion of the locked-in funds to be unlocked under certain circumstances including shortened life expectancy, non-residency, financial hardship or maintenance enforcement.

Defined Contribution Pension Plan Options

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CRA: Pension supervisory authorities
OBSI: Case Studies: Retirement Planning