Retiring with Pension Money and the Unlocking rules

Over the past few months I have helped a few clients with their LIRAs and the ability to generate income from those accounts. I thought it might be a good refresher to familiarize ourselves with the rules regarding pension money. Although rules can differ from province to province, I will focus on Alberta rules

Leaving your employer

When you leave your place of employment you will be given options on what you can do with your pension funds.  One of those options will be the ability to transfer your pension funds to another financial institution. Due to the fact that the money is in a pension it has to move into a LIRA or Locked-In Retirement Account.

Related article:  The Differences between LIRAs and RRSPs

You can’t spend your money out of a LIRA; you will have to convert it into another product that generates income from pension money. Life Income Funds or Life Annuities are such products. In Alberta, you have to be 50 years of age before you can start receiving this income.  Life Annuities are just that, an annuity that provides you income for life. You can purchase them from insurance companies. Once a Life Annuity is in place there is very little chance to make any changes.

Related article: Everything you need to know about Life Annuities

A Life Income Fund or LIF, offered at most financial institutions gives you a few more options; more say on how the money is invested and income paid out. LIFs have minimums and maximums on their payouts. You will need to consult the financial institution to get more information on the payouts.

Related article:  Understanding LIFs and RRIFs

Unlocking Pension Money

In Alberta, you can unlock 50% of your locked in money but there are other scenarios that enable you to unlock the money in your LIRA. The others are: Financial Hardship, Non Resident of Canada, Shortened Life and Small Amount Access.

In order to claim Financial Hardship you will need to meet one of the five reasons to unlock your money. Those are Low Income, Foreclosure, Behind on Rent and Eviction, Security Deposit and First Month’s Rent and lastly Medical Costs and Renovations. (Alberta Government Web Site) Of course there are forms to fill out when applying for Financial Hardship which you can gather from your financial institution or provincial government web sites.

Related article:  Unlocking Pension Money due to financial hardship

If your injury or illness has shortened your life expectancy, you might be able to unlock your money. Again, forms required and a letter from your Doctor.
You have become a Non Resident of this Country and the CRA has confirmed this in writing you might be able to unlock your pension money. The form for which you can submit to start the process can be found on the CRA web site. You give the CRA confirmation to your financial institution and they can unlock your money.

Lastly, if your LIRA has a very small amount in it, you can apply to unlock. I just processed one of these last month. The amount has to be under $10,720 and the pensioner has to be under age 65. If you are 65 or older the total is under $21,440 your funds can be unlocked. (Note:  These thresholds can change from year to year). Once you have unlocked your money you can take it in cash (applicable taxes apply). You can also transfer the unlocked money to your RRSP or RRIF (i.e.: 50% unlocking)

From what I have seen over the past 21 years, there are fewer and fewer Defined Benefit pensions out there and more Group RRSP and DCPPs (Defined Contribution Plans). When it comes to retirement or leaving the company you are at and you have a pension, make sure you explore all your options to determine which one meets your objectives.

Written by Scott Wallace

Scott Wallace has been in the Insurance and Investment industry for the past 19 years. His role is to take what is important to his clients and help them make those dreams a reality. Scott is a CFP, CLU and a Qualifying and Lifetime Member of the Million Dollar Round Table.

2 Responses to Retiring with Pension Money and the Unlocking rules

  1. Jim, I understand the only portion of your RPP contributions that are considered “locked in” would be any match you made to a company contribution (as well as the company’s contribution). Variable contributions over and above the match would be rolled into RIF’s not LIF’s. For example, if your company contributes 4% of your earnings to your RPP and you contribute a total of 11%, the additional 7 can be rolled into a RIF at retirement, not a LIF. This is not well covered in any documentation. Can you direct us to additional information on this topic? Thanks.

  2. I am in Newfoundland 2 years rule aloud me to take 174000 of 235000..now but 5 ways to approate it ..2 over 55 ..no good… company..also no good..is there any way I can get any for my hardship …can’t work for maby year or more… car accident …need money out of it…Newfoundland any way 20000 I need.

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