Where do locked-in funds come from?
If you have a locked-in account, that’s because you were, at one point, part of a pension plan sponsored by your employer.
Then, when you left that job before your retirement age, you probably had a few options for what to do with the funds built up in your pension plan. In many cases, an option for pension plan members leaving a job is to transfer the funds to a locked-in retirement account (LIRA), also known as a locked-in RRSP. A LIRA is similar to a Registered Retirement Savings Plan (RRSP) — but unlike an RRSP, there are restrictions on how funds can be withdrawn.
Can I access the funds in my locked-in account?
The rules for unlocking locked-in accounts are complex, and can depend on factors like which province you were working in when you participated in the pension plan, your age, how much is in the account, and whether you're resident in Canada or not.
The unlocking rules are generally similar from jurisdiction to jurisdiction; however, and below is a general overview of the rules.
What are the conditions for unlocking funds in a locked-in account?
You might be able to withdraw funds from a locked-in account if you can answer “yes” to at least one of these four questions:
1. Is there only a small amount in the account?
If the amount in your locked-in account is fairly small, you may be able to unlock some or all of it. While different provinces have different rules, a typical unlocking rule might be that the amount in the account can be unlocked if you meet two conditions:
- The account balance is at or below a specific dollar amount, and
- You are at least a certain age, like 55 or older.
For example, in Ontario, you can unlock funds from a locked-in account if you are age 55 or older and the amount in the account is less than 40 per cent of something called the Year’s Maximum Pensionable Earnings, or YMPE.
The YMPE is a dollar amount set each year for the Canada Pension Plan — and it also determines the amount a person is eligible to withdraw or transfer from a locked-in account in some provinces. A new YMPE is set every year to reflect rising wages, and the YMPE for 2020 is $58,700.
Unlocking in practice: Johann
Johann lives in Alberta, where he worked and earned a pension benefit that was transferred to a LIRA when he left his job. The Alberta unlocking rule says that if the amount in his locked-in account is less than 20 per cent of the YMPE, he can “unlock” the account. The 2020 YMPE is $58,700, and 20 per cent of this amount is $11,740.
The amount in Johann’s LIRA is $9,500. Because this amount is under the unlocking threshold, Johann can unlock his locked-in account and withdraw the funds, or transfer them to his RRSP. (There is no age requirement to unlock a “small balance” in a locked-in account in Alberta.)
2. Do you have a shortened life expectancy?
- If a physician has certified that you have an illness or disability that is likely to shorten your life expectancy, you may be able to withdraw some or all of the funds in your locked-in account.
Unlocking in practice: Mirelle
Mirelle, age 45, lives in Quebec and has recently been diagnosed with a medical condition that her physician believes will reduce her life expectancy.
The unlocking rules in Quebec provide that funds in a LIRA can be paid to the account-holder if they are disabled due to a physical or mental condition that reduces life expectancy. Under the unlocking rules in Quebec, Mirelle applies to unlock her LIRA and receives the funds as a lump sum.
3. Do you no longer live in Canada?
- If you no longer live in Canada, and you’ve been gone for at least two years, you may be able to withdraw all the funds from your LIRA.
Unlocking in practice: Donald
Donald is 53 and moved away from Canada three years ago. Before he left, he worked in a job that provided a pension plan — and when he left his job, the funds in his plan were transferred to a LIRA.
Donald’s pension plan is governed by the rules in Nova Scotia, which provide that he can apply to unlock and withdraw the funds in his LIRA after he’s been a non-resident of Canada for 24 months. Because Donald left Canada more than two years ago, he applies to his financial institution, using the prescribed form from the Nova Scotia government, to unlock the funds in his LIRA.
4. Do you need the funds to meet your immediate financial needs?
- If you are experiencing financial hardship, you may be able to withdraw some or all of the funds in your locked-in account.
- The “financial hardship” rules vary from jurisdiction to jurisdiction, but might include situations where you are facing eviction due to unpaid rent, you have low expected income in the year of application, or you would like to use the funds to renovate your home to better meet the needs of a family member with an illness or disability.
Unlocking in practice: Yuki
Yuki is 37 and has been diagnosed with multiple sclerosis. Recently, she’s started to use a wheelchair. She lives in a house she owns in Ontario, and she has funds in a LIRA from a job she worked at earlier in her career.
The Ontario unlocking rules provide that funds in a locked-in account can be unlocked for medical reasons, including renovations to your home based on medical need. Yuki applies to her financial institution, using the prescribed form from the Ontario government, to unlock her LIRA so she can use the funds to add a wheelchair ramp to her home.
Unlocking once you’ve hit age 55
In addition to these four options for unlocking funds in a locked-in retirement account, you may be able to convert your LIRA to a Life Income Fund (LIF) or locked-in retirement fund, and then draw income from or unlock funds from that account.
This option is generally available if you are age 55 or older. For example, if the funds in your LIRA came from a pension plan that is regulated under the federal rules, and you are 55 or older, you can convert your LIRA to a LIF, and then unlock up to 50 per cent of the amount in the LIF to a tax-deferred account, such as an RRSP.
Unlocking in practice: Bernard
For example, Bernard is 62 and worked for the federal government earlier in his career. When he left his federal job, he transferred his pension entitlement to a LIRA that now has $100,000 in the account. Under the federal unlocking rules, Bernard can convert his LIRA to a LIF, and then transfer 50 per cent of the account value — $50,000 in his case — to his RRSP.
Where can I learn more about the rules that apply to me?
If the funds in your locked-in account were from a pension plan that’s regulated by a Canadian province, your provincial pension regulator can tell you more about whether you qualify for any of these unlocking provisions.
If the funds were in a federally-regulated pension plan, on the other hand, the same rules apply all across Canada, and do not vary based on your province. The rules for federal plans are similar to those for provincial governments.
To get detailed information about the rules for your specific situation, you’ll need to contact the pension regulator for the province where your pension was located or, if your pension was federally regulated, from the Office of the Superintendent of Financial Institutions Canada (OSFI).
Should I unlock my locked-in funds?
If you are thinking about unlocking funds in a locked-in account, it's important to check whether you are eligible under the specific rules that apply to your situation — either the province where the pension plan was registered, or the federal rules, if applicable.
However, it’s at least as important to check whether unlocking the funds fits in your overall financial plan. For example, the funds were originally set aside as part of a pension plan to fund your retirement expenses. If you withdraw them now, before retirement, will you still be able to meet your retirement income goals?
Here’s where meeting with a professional advisor may help you weigh the implications of withdrawing today, and help ensure you can still meet your long-term financial goals.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.