Locked In Retirement Account

A Locked In Retirement Account also known as a LIRA is a registered retirement savings account in which you would transfer your locked-in work pension into. If you are participating in a pension plan at your current company, either a Defined Benefit Plan or a Defined Contribution Plan, and quit the company, you will have the option to transfer your pension into a LIRA or LRSP. In most cases, the options are:

Leave the accumulated pension funds in the plan
Transfer the accumulated pension to a LIRA/LRSP
Transfer the accumulated pension to purchase an annuity

The Locked In Retirement Account is meant to help you continue to accumulate retirement income as if you were still part of the pension. However, you’d have to make your own investment decisions or inquire with an advisor.

LIRA vs LRSP

It’s important to distinguish the difference between an LIRA and a LRSP (Locked In Registered Savings Plan). They’re essentially identical except the legislation of the pension, either federal or provincial. LRSPs are offered at the federal level.

Example: If you worked for a Canadian bank which are governed federally, then you would have to open an Locked-In Retirement Savings Plan (LRSP). If you worked for a construction company based in Ontario, then you would have to open a Locked In Retirement Account.
TIP: Banks, Radio & Television, Crown Corporations, Transport sectors are subject to federal pension legislation

It’s important to make this distinguishing factor when setting up the account so your transfer can go smoothly.

Opening an Locked In Retirement Account

The process of opening a Locked In Retirement Account begins when your former employer provides you with your pension package and options when you leave the firm. Once that is provided then you have to decide what option you want to pursue. Keep in mind that if you opt of your pension plan, you may give up other group benefits and coverage such as dental, health, life insurance, etc. It’s important to be aware of this. To begin the process of opening a LIRA:

Determine what legislation your Locked In Retirement Account would fall under
Visit your local financial advisor to open an account
Open your LIRA/LRSP
Submit your pension package along with the LIRA/LRSP account number to your former company
The former company would proceed to move the accumulated pension funds to your LIRA/LRSP
Start investing the funds in a portfolio that is in accordance with your risk appetite and risk tolerance.

Similar to RRSPs, funds in LIRAs are able to accumulate tax deferred until withdrawn. In most provinces, Locked In Retirement Account holder can start withdrawing regular income as early as 55.

Creditor Protection

When you open a Locked In Retirement Account, you can be comfortable of the thought that they can’t be accessed by creditors, however, keep in mind that under certain circumstances such as marriage breakdown, Locked In Retirement Accounts may have to be split with your spouse or common law partner.

Naming a Beneficiary

The beneficiary can be your spouse, common law partner, estate or another individual. If you wish to name a beneficiary someone other than your spouse or common law partner, your spouse/common law partner must complete a waiver and give up their right to your locked-in funds. If you don’t have a spouse, then you can designate a beneficiary of your choosing.

Withdrawing from your Locked In Retirement Account

If you’re looking to withdraw from your Locked In Retirement Account, you must complete applicable forms and meet certain requirements that vary province by province. As each province differs in terms of criteria, we’ve listed below common themes that you may withdraw for. Depending on the jurisdiction that the Locked In Retirement Account is subject to, funds can be accessed via

Financial Hardship or
Non-Financial Hardship

Financial Hardship	Jurisdictions
Low Expected Income Individuals can complete one unlocking application per year for low expected income. Spousal consent would be needed.	Federal Ontario British Columbia Alberta Nova Scotia
Rent/Mortgage in Arrears Individuals behind on their mortgage payments could request to access their locked in funds.	Ontario British Columbia Alberta Nova Scotia
First and Last Month’s Rent & Security Deposit If you’re looking to secure a place to live, you may access your locked in funds by completing applicable forms.	Ontario Alberta British Columbia
Medical & Disability Costs The account holder may request a one time unlocking in order to cover medical costs. A doctor’s note must accompany the unlocking documents.	Federal Alberta Ontario Nova Scotia
Non-Financial Hardship	Jurisdictions
Small Balance Unlocking (Restricted by Age & Amount in Certain Provinces) Small Balance refers to accounts whose total value is less than a certain percentage of the YMPE. For example, in Ontario, you must be at least 55 years old and the value of the account must be less than 40% of the YMPE.	Federal Alberta British Columbia Ontario Manitoba Saskatchewan Nova Scotia Quebec
50% Unlocking (Restricted by Age in Certain Provinces) You may unlock 50% of the value of your LIRA by opening a LIF & completing the applicable provincial & federal forms. Once unlocked, you may transfer 50% these funds into an RRSP while the other 50% will stay in the LIF.	Federal Ontario Alberta Manitoba
Shortened Life Expectancy You may unlock your funds if your life expectancy has been shortened due to a terminal illness. For example, in Ontario, you may withdraw from your account if your life expectancy has been shortened to 2 years or less. You would need a doctors note and spousal consent.	Federal Alberta British Columbia Ontario Quebec Manitoba Saskatchewan Nova Scotia New Brunswick
Non-Residency If you’re a non-resident of Canada and have been so for more than 2 years, you may unlock your funds pending that you’ve received a confirmation letter from the CRA.	Federal Alberta British Columbia Ontario Quebec Manitoba Saskatchewan Nova Scotia

Be mindful that in order to unlock the account, applicable forms and spousal consent may have to be provided.

Tax on Withdrawals

Keep in mind that income from LIRA withdrawals is taxable and added to your annual income. Withholding tax would apply.

Withdrawal Amount	Up to $5,000	Between $5,000 and up to $15,000	Over $15,000
Tax Rate withheld for Canadian residents	10%	20%	30%
Tax Rate withheld for the province of Quebec	5%	10%	15%

Mandatory Conversion

Keep in mind that by the end of the year you turn 71, the Locked In Retirement Account has to convert to either a Life Income Fund, Locked-In Retirement Fund, Prescribed Registered Retirement Income Fund or a life annuity.

Tax Issues at Death

One of the most important things you could do is naming a qualifying beneficiary on your Locked In Retirement Account. A qualifying beneficiary would be:

spouse/common law partner
financially dependent child
financially dependent child with mental or physical disability

By naming a qualifying beneficiary, upon your death, the funds in the plan can be transferred into a locked-in plan, a registered plan or may be used to purchase an annuity on a tax deferred basis.

If the beneficiary is listed as estate or a non-qualifying beneficiary, then the funds accumulated in the locked-in plan would be taxable on your final return.

Each provincial jurisdiction is different but upon your death, depending on the province, funds can stay locked-in and be transferred to your spouse. When the beneficiary is someone other than your spouse, the funds would become unlocked. Each province deals differently with their locked-in account legislation which is why it’s important to visit your provincial pension regulators’ website.