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Unlocking Pension Funds

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Financial Planning -> Pensions -> Registered Pension Plans (RPPs) - Unlocking locked-in pension funds

Unlocking Your Locked-in Pension Accounts

Some provinces allow the "unlocking" of all or a portion of a LIRA, LIF or LRIF under certain circumstances.  Some of the circumstances include:

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bullet small balances in the account, under a specified threshold amount
bullet becoming non-resident of Canada
bullet shortened life expectancy
bullet financial hardship
bullet spousal or child maintenance enforcement orders

Some provinces allow the "unlocking" of all or a portion of  a locked-in account without the above restrictions.  For information by province, follow the links to your pension plan regulator, in the table of RPP regulators, or the following links:

bulletAlberta - see their policy bulletins:
bullet #32- Unlocking of Pension Benefits - Summary, and
bullet #34 - 50% Unlocking
bullet BC - see the FICOM web page on Locked-in RRSP and LIF rules
bulletManitoba - up to 50% of a LIF or LRIF may be transferred to a prescribed RRIF.  See Unlocking or accessing pension funds.
bullet New Brunswick - Frequently asked questions
bullet Newfoundland & Labrador:
bulletDirectives:
bullet Locked-in Retirement Account Requirements (pdf)
bullet Locked-in Retirement Income Fund Requirements (pdf)
bullet Nova Scotia - Locked-in Retirement Accounts
bullet Ontario
bullet Locked-in accounts - from Financial Services Commission of Ontario (FSCO)
bulletFrom January 1, 2011 to April 30, 2012, owners of Old LIFs and LRIFs will have a one-time opportunity to withdraw in cash or transfer to an RRSP or RRIF up to 50% of the total market value of the assets of the fund.  See the following FSCO information on changes: 
bullet Changes to the rules for Ontario locked-in accounts
bullet Locked-in account questions and answers
bullet Guide to Applying for Special Access to locked-in funds.
bullet Québec - LIRAs and LIFs
bulletSaskatchewan - Under certain circumstances, Saskatchewan allows the transfer of 100% of pension funds to a prescribed RRIF.  See their Pension Division web page Your Options at Retirement, as well as their web page on Unlocking Pension Money.

Federally-regulated pension plans

Under some circumstances, when your employment with the pension plan provider ends, it may be possible to have your plan paid out instead of being transferred to a locked-in account, if the value in the plan is low, or if you have a shortened life expectancy.  Check with your plan administrator.

If your federally-regulated pension plans has been transferred to a:

bullet

locked-in RRSP

bullet

locked-in Life Income Fund (LIF); or

bullet

Restricted Life Income Fund (RLIF)

then the following unlocking provisions are available:

Small balance unlocking

Individuals 55 or over with LIF holdings of less than 50% of the Yearly Maximum Pensionable Earnings (YMPE, 50% = $25,550 in 2013) will be able to wind up their accounts with the option to convert to a tax-deferred savings vehicle, such as an RRSP or RRIF.

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One-time 50% unlocking

Individuals 55 or older will be entitled to a one-time conversion of up to 50% of holdings value into a tax-deferred savings vehicle with no maximum withdrawal limits. If the funds are transferred to the locked-in funds owner's own RRSP or RRIF, this does not require contribution room, and the owner is not taxed until the funds are later withdrawn from the RRSP or RRIF.

On the website of the Office of Superintendent of Financial Institutions (OSFI), it is stated that the unlocked funds can be transferred to any RRSP or RRIF, not necessarily one belonging to the holder of the locked-in funds.  This statement just confuses the issue, because a transfer to someone else is the same as a taxable withdrawal and subsequent gift.

Let's say Jane is unlocking $100,000 of her locked-in funds, and she has transferred the funds to her own RRSP or RRIF.  If she wants to transfer all or a portion of the funds instead to one or more others, this is the same as withdrawing the funds and then gifting them to someone else.  She will be taxed on the amount withdrawn.

If the recipient (spouse or other) wishes to deposit the gift to their RRSP, they would have to have sufficient contribution room.

If Jane wishes to make a contribution to a spousal RRSP, she would have to have sufficient contribution room.

The only time that a direct transfer to a spouse's registered plan is necessary is to fulfill the requirements of a divorce or separation agreement.  In this case no contribution room is necessary and the transfer does not generate taxable income.

Financial hardship unlocking

The amount that can be unlocked is:

  1. Low income - the amount is based on the expected income (line 236 on your tax return) for the year, and varies from a withdrawal of 50% of the YMPE (50% = $25,550 for 2013) for $0 in expected income, to no withdrawal allowed when expected income is 75% of the YMPE (75% = $38,325 for 2013)
  2. High medical or disability related costs - the amount of medical expenses can be unlocked, up to a maximum of 50% of the YMPE, as long as medical expenses exceed 20% of the YMPE (20% = $10,220 for 2013).  The medical expenses can include expenses of the plan holder or others, including a spouse or dependant.

Non-resident unlocking

If you are no longer employed by the employer from which the pension funds originated, and you have been a non-resident of Canada for at least 2 consecutive years, then you can unlock the total value of your plan funds.

Shortened life expectancy unlocking

If a physician has certified that you have a shortened life expectancy due to a physical or mental disability, then the total value of your plan funds can be unlocked.

The yearly maximum pensionable earnings (YMPE), is the maximum amount on which contributions to the Canada Pension Plan (CPP) are based.  Thresholds which are based on the YMPE will change each year as the YMPE changes.  See the CPP/EI page for the YMPE.

Note that the unlocking of these funds will lose the protection from creditors provided to locked-in funds.

The Office of the Superintendent of Financial Institutions Canada (OSFI) information on Pension Unlocking provides more information on federally-regulated pension plans.

See also - links to all information on TaxTips.ca related to persons with disabilities.

Tax Tip:  Contact the regulator of your pension plan to determine what you can do with your LIRA - don't rely solely on information from your financial institution.

 

Revised: March 27, 2014

 

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