Unlocking Funds from a Locked-in Retirement Savings Account (LRSP)
A Locked-In Retirement Savings Account (LRSP) is a special type of Registered Retirement Savings Plan into which you can transfer your vested pension benefits from your old employer’s federally regulated pension plan.
If your pension benefits are regulated by provincial pension legislation then you must set up a Locked-In Retirement Account (LIRA). LIRA accounts are administered according to the original pension plan’s provincial pension legislation. For specific information concerning the administration of LIRA accounts, you should refer to the applicable provincial pension legislation or the financial institution administering your locked-in account.
Note: While InvestingForMe does not discuss the administration of LIRA accounts, we do provide links to the relevant provincial pension plan websites in our section Government Website Links.
Frequent and regular withdrawals from an LRSP are not permitted. If you would like to make regular withdrawals and you meet the criteria, you will need to convert your LRSP into one of the following income account options:
- a Life Annuity
- a Locked-In Retirement Income Fund (LRIF), or
- a Restricted Life Income Fund (RLIF)
Although regular withdrawals are not permitted, there are options for you to unlock and withdraw a portion of your LRSP under certain circumstances such as one of the following:
- If your pension plan permits, pension funds may be unlocked when you terminate your employment where the amount of the annual pension that would be payable to you at pensionable age is less than 4% of the Year’s Maximum Pensionable Earnings (YMPE) in the year that your employment ended.
- If you become a non-resident of Canada for a period of at least two calendar years and have terminated your employment with your employer, your pension benefits are exempt from the locking-in provisions of the Federal Pensions Act. You are considered to be a resident in Canada throughout the calendar year if you have stayed in Canada in the year for 183 days or more. If you qualify, you can unlock the total value of LRSP.
- If you are facing financial difficulties you may be eligible to apply for an unlocking of your LRSP funds due to financial hardship. If the financial hardship is due to your low income, then the amount eligible for withdrawal will depend upon your expected income for the year and the amount eligible for unlocking. In 2012, the amount available for unlocking will range from a maximum of $25,050.00 to $0.00 if your expected income is $37,575.00 or greater. The unlocked portion can be received as a cash payment or transferred into an RRSP or RRIF.
- If you are facing financial hardship due to high medical or disability related costs, then you may qualify to unlock a portion of your LRSP. The amount of your LRSP eligible for unlocking can be an amount equal to your medical expenses up to a maximum of $25,050.00, for 2012, provided that the medical expenses exceed 20% of your expected annual income. The unlocked portion can be received as a cash payment or transferred into an RRSP or RRIF.
- If you are facing a shortened life expectancy due to physical or mental disability, you may be able to unlock a portion of your LRSP. A physician must certify your? claim of a shortened life expectancy. If you qualify, you can unlock the total value of your LRSP. The unlocked portion can be received as a cash payment or transferred into an RRSP or RRIF.
- If you are 55 years of age or older, you are eligible for a one-time unlocking of 50% of your LRSP. In the calendar year you turn 55 years of age or in any year after, you are allowed to transfer 50% of your locked-in funds into a tax-deferred savings vehicle, such as a Registered Retirement Savings Plan (RRSP), from which you can then withdraw funds. You are not permitted to receive the unlocked portion as a cash payment. To unlock up to 50% of your LRSP you must first transfer all of your LRSP into a Restricted Life Income Fund (RLIF). From your RLIF you then transfer the unlocked portion into an RRSP or RRIF. Once your RLIF has been opened and the LRSP assets have been transferred, you have up to 60 days to transfer the 50%-unlocked portion to an RRSP or RRIF.
- If you are 55 years of age or older and the value of your LRSP is considered to be small (less than $25,050.00 in 2012), you will be able to unlock the total value of your LRSP. The unlocked portion can be received as a cash payment or transferred into an RRSP or RRIF.
Note: If you wish to unlock funds, you will be required to provide written proof that shows your spouse or common-law partner agrees to the unlocking of your pension benefits. The written proof is in the form of an attestation by your spouse or common-law partner made before a notary public, commissioner, or another person authorized to take sworn affidavits. Unlocking funds from a LRSP is not possible without the consent of your spouse or common-law partner.
For those qualified to unlock a portion of their LRSP under the 50% unlocking option, you must first transfer the LRSP into a Restricted Life Income Fund (RLIF). Then from the RLIF you can transfer up to 50% of the fund’s value into an RRSP or RRIF.
The remaining assets held in your RLIF will then make regular payments according to the minimum and maximum amounts dictated by the federal pension legislation. The following figure illustrates this process:
If at a future date you no longer need regular withdrawals from your Restricted Life Income Fund (RLIF) and you are 71 years of age or younger, you are permitted to transfer your RLIF into a Restricted Locked-in Savings Plan (RLSP).
Note: For the one-time 50% unlocking withdrawal, the federal pension regulations require the unlocked amount to be transferred to an RRSP or RRIF, but they do not require that the transfer be to a registered account in the name of the LRIF holder. So a transfer to a Spousal RRSP is permitted under the regulations. However, there may be restrictions and income tax implications under the Income Tax Act for a transfer to a Spousal RRSP.
For information concerning withdrawals from provincially regulated LIRA accounts, visit the respective provincial government websites or ask for information from the financial institution administering your LIRA. (A list of these sites is provided in our section Government Website Links.)