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The days when our parents or grandparents worked for the same employer their entire career have long passed. Now, people change jobs and employers often and this has increased the need to move one’s pension savings from the old company. That usually requires you to open a locked-in retirement account (LIRA) or a locked-in registered retirement savings plan (locked-in RRSP). The reasoning for having this plan locked-in is to make sure these funds are used for your retirement – as though you were getting a company pension. Once you take out those pension savings, it is up to you to invest the money for your future, as the government rules prevent you from cashing it in.

Many more Canadians now have locked-in RRSPs, which later are switched into locked-in accounts such as a life income fund (LIF), when you want to start receiving an income stream from the plan.

The locked-in RRSP has a different name if it is governed by provincial, as opposed to federal, pension legislation. Most provinces call it the aforementioned LIRA. Territories that do not have pension legislation use the federal legislation. Prince Edward Island is the only province that does not have active pension legislation and does not simply use the federal legislation. For the purpose of this article I will use the federal term “locked-in RRSP."

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There is a lot of confusion over locked-in accounts because, unlike a pension, it is held under a person’s name in an account where they can see and manage the investments. Remember, the locked-in account is designed to be used when you retire, and to produce income, in lieu of the income normally received from a company pension.

Here are 10 things you should know about locked-in RRSPs:

  1. The assets within the account can be invested as though it was in a regular RRSP. You can invest the money in bonds, guaranteed investment certificates, mutual funds, stocks, exchange-traded funds and other investments.
  2. U.S. stocks of companies that are headquartered in the United States and pay a dividend are not subject to non-residency withholding taxes. We have a tax treaty with the United States, and any U.S. dividends that are paid into accounts deemed for retirement purposes are excluded for non-resident withholding taxes. Note that this does not apply to tax-free savings accounts (TFSAs).
  3. Locked-in RRSPs are regulated by the Income Tax Act as either federal or provincial pension legislation. This is mainly determined by the pension legislation that was applied to the company pension where the funds were derived.
  4. Funds deposited into a locked-in RRSP must come from a company pension or another locked-in plan. You cannot make contributions into a locked-in account.
  5. Unlike funds in a regular RRSP, funds in locked-in RRSPs are not available for withdrawal except for specific circumstances. The opportunity for early withdrawal of funds is subject to the pension legislation of the province governing the account; not all provinces allow this. Two examples of conditions that allow for special withdrawals from locked-in plans are financial hardship and small plan balances. You would have to apply to unlock the funds, stating the specific reason for the request. Check with the institution holding your account to find out whether or not you can apply.
  6. Once you turn 71, your federally regulated locked-in RRSP must be transferred into a LIF or a restricted life income fund (RLIF). For provinces that have LIRAs, the maturity option is to move the plan into a LIF. There is a mandatory minimum amount you have to withdraw each year and it is taxable as income similar to a retirement retirement income fund (RRIF). There is also a restriction on the maximum annual amount you can take out.
  7. You can gradually unlock your LIF by withdrawing the maximum allowed, receiving the minimum amount in cash, and transferring the difference into a regular RRSP or RRIF for future withdrawal. This is effectively unlocking some of the funds so you can choose when exactly you take out that taxable income.
  8. Maturity options and the earliest age you can start getting payments from a locked-in RRSP/LIRA vary from province to province and if covered by federal legislation. Most jurisdictions allow you to convert at the age of 55, but a few allow it at an earlier age. In some cases, there may be the opportunity for you to unlock part of the assets when converting to a maturity option.
  9. You can name a spouse as the beneficiary/successor annuitant to your locked-in RRSP, thereby avoiding the probate cost and income tax. If you name a beneficiary who is not your spouse the plan will still be subject to income tax, but can pass on without probate.
  10. Another maturity option is to purchase a life annuity. This gives you a fixed interest rate for life. This is most desirable when interest rates are high. With today’s low interest rate environment, there are probably better options for a greater return.

The terminology and rules governing a locked-in RRSP/LIRA can be confusing and daunting. It is important for each person that has a LIRA to know the legislation that regulates the terms, conditions and maturity options.

It is important to consider future income needs, estate planning, tax planning and who is going to manage the investment. Remember, the income that is eventually paid to you from the locked-in account is, like any other retirement plan, taxed as income. It supplements other retirement income streams, such as Canada Pension Plan, Old Age Security or a RRIF, and is designed to provide you with financial support when you are no longer working.

Below is a chart from RBC Wealth Management showing the maturity options by province for locked-in accounts.

2019 Locked-in maturity options

By province

The rules governing when you can withdraw

funds from a locked-in retirement account

depend on the pension legislation – whether

federal or provincial – regulating the account.

Maturity

options

Earliest initial

payment

Province

 

LIF

Any age

Federal

Age 55

RLIF

Life annuity

Any age

LIF

Age 50

Alberta

Life annuity

Age 50

LIF

Age 50

British Columbia

Life annuity

Age 50

LIF

Any age

Life annuity

Age 55

Manitoba

Prescribed RRIF

Age 55

LIF

Any age

New Brunswick

Age 55

Life annuity

Age 55

LIF

Newfoundland

& Labrador

Age 55

Life annuity

Age 55

LRIF

Age 55

LIF

Nova Scotia

Age 55

Life annuity

Age 55

LIF

Ontario

Age 55

Life annuity

LIF

Any age

Quebec

Life annuity

Any age

Age 55

Life annuity

Saskatchewan

Age 55

Prescribed RRIF

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE:

rbc; Federal and provincial pension

legislations, regulations and policies, 2019

2019 Locked-in maturity options

By province

The rules governing when you can withdraw funds from

a locked-in retirement account depend on the pension

legislation – whether federal or provincial – regulating

the account.

Maturity

options

Earliest initial

payment

Province

 

LIF

Any age

Federal

Age 55

RLIF

Life annuity

Any age

LIF

Age 50

Alberta

Life annuity

Age 50

LIF

Age 50

British Columbia

Life annuity

Age 50

LIF

Any age

Life annuity

Age 55

Manitoba

Prescribed RRIF

Age 55

LIF

Any age

New Brunswick

Age 55

Life annuity

Age 55

LIF

Newfoundland &

Labrador

Age 55

Life annuity

Age 55

LRIF

Age 55

LIF

Nova Scotia

Age 55

Life annuity

Age 55

LIF

Ontario

Age 55

Life annuity

LIF

Any age

Quebec

Life annuity

Any age

Age 55

Life annuity

Saskatchewan

Age 55

Prescribed RRIF

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: rbc;

Federal and provincial pension legislations,

regulations and policies, 2019

2019 Locked-in maturity options by province

The rules governing when you can withdraw funds from a locked-in retirement

account depend on the pension legislation – whether federal or provincial –

regulating the account.

Province

Maturity options

Earliest initial payment

 

LIF

Any age

Federal

Age 55

RLIF

Life annuity

Any age

LIF

Age 50

Alberta

Life annuity

Age 50

LIF

Age 50

British Columbia

Age 50

Life annuity

LIF

Any age

Life annuity

Age 55

Manitoba

Age 55

Prescribed RRIF

LIF

Any age

New Brunswick

Age 55

Life annuity

Age 55

LIF

Newfoundland &

Labrador

Age 55

Life annuity

Age 55

LRIF

Age 55

LIF

Nova Scotia

Age 55

Life annuity

Age 55

LIF

Ontario

Age 55

Life annuity

LIF

Any age

Quebec

Life annuity

Any age

Age 55

Life annuity

Saskatchewan

Age 55

Prescribed RRIF

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: rbc; Federal and

provincial pension legislations, regulations and policies, 2019

Your locked-in plan may be a major source of your retirement income in the future. It is important that you get professional planning advice to fully explain the specific options and strategies available to you.

Nancy Woods is a vice-president, portfolio manager and investment adviser with RBC Dominion Securities Inc. Visit her blog, “Nancy’s Notes” at nancywoods.com or send her your question to asknancy@rbc.com.

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