Locked-in accounts

Locked-in accounts hold funds originally accumulated through a workplace pension plan. The funds are "locked," as if they were still part of a defined benefit pension plan intended to provide a lifetime income. Because locked-in accounts are meant to replicate the lifetime pension plan entitlements formerly enjoyed by the employee, there are strict limits on withdrawals.

Locked-In Retirement Account

A Locked-In Retirement Account (LIRA) is used to hold a lump sum transferred from a pension plan, often when the holder changes jobs. A LIRA operates something like an Registered Retirement Savings Plan (RRSP) (and is sometimes called a "Locked-In RRSP", or LRSP) in that the funds within the plan compound tax free. The major difference is that the funds can not be withdrawn from the LIRA - it is "locked in" under rules depending upon the original pension plan and its terms of registry. To allow access to the funds, the LIRA is usually either converted to a LIF or LRIF (see below) or used to purchase an annuity.

However, a partial unlock may be allowed by some provinces, and very small LIRAs can sometimes be deregistered and the amounts transferred to an RRSP. The details vary from jurisdiction to jurisdiction, and depend upon the jurisdiction in which the original pension plan was registered, not the province or territory in which the annuitant lives.

For example, if a pension plan is registered in Ontario and the commuted value transferred to a LIRA, Ontario rules apply, even if the annuitant retires in another province. As a further complication, some pension plans are covered by federal, not provincial legislation. Prince Edward Island is the only province that does not have active pension legislation and does not simply use the federal legislation.

LIRA holders will normally be informed by a company's human resources department which rules apply when they choose the commutation option.

Accessing Locked-In Funds by simultaneous buy and sell

Although an annuitant can not access funds in a LIRA directly, it is possible to access LIRA cash flow by simultaneously selling a security in a non-registered account and rebuying it in the locked account. Although this was previously done by swapping (if the two accounts were at the same brokerage), most brokerages no longer allow swapping.

Suppose Jane has a LIRA, an RRSP, and a non-registered account. The LIRA has a $10000 bond coming due and she would like to access the cash for a major house renovation. She is not allowed to access it directly. However, she has stocks in both her self-directed RRSP and in her non-registered account worth slightly less than $10000 (the amount must be slightly less because she can not contribute additional cash to the LIRA). In her non-registered account, she holds stock in ABC Company with an adjusted cost base (ACB) of $5000 and a current market value of $9800. If she sells that stock and rebuys it within the LIRA, she will get $9800 of the $10000 the LIRA has in free cash. She will pay two transaction fees and tax on the capital gain she had on ABC Company - that is, tax on about $2400 (50% of the difference between $9800 less the selling fee, and $5000). She could also sell and rebuy a security held in her RRSP with the LIRA, then withdraw funds from the RRSP. In that case, the entire amount withdrawn would be fully taxable.

If a non-registered security with a capital loss is used for the sell and rebuy, the capital loss will be disallowed and can not be used for tax reduction.

What happens at retirement?

At retirement or, at the latest, the end of the year the account holder turns 71, the Locked-In RRSP/LIRA must be transferred to one or more of (depending on the province):

• a life annuity
• a Life Income Fund (LIF)
• a Locked-in Retirement Income Fund (LRIF)
• a prescribed RRIF (pRRIF)

The following table shows the non-annuity options for each jurisdiction:

Pension act	LIF	LRIF	Prescribed RIFF	Restricted LIF/RLIF
Newfoundland	x	x
Nova Scotia	x
New Brunswick	x
Quebec	x
Ontario	x
Manitoba	x		x
Saskatchewan			x
Alberta	x
British Columbia	x
Federal	x			x

LIFs and LRIFs

In most jurisdictions, a LIRA is generally converted to either a Life Income Fund (LIF) or a Locked-In Retirement Fund (LRIF). A LIF originally required the holder to purchase an annuity at age 80. This requirement has generally been eliminated and LRIFs and LIFs are now similar, except in Newfoundland. Both are essentially versions of an Registered Retirement Income Fund (RRIF) with withdrawal limits.

Minimum withdrawals are calculated as a percentage of the plan value on January 1 and the plan holder's age on that date, and are the same as those used for an RRIF.

Maximum withdrawals are dependent upon bond rates in November of the preceding year, as well as the plan holder's age. Note that the upper withdrawal limit will be eliminated in Quebec in 2025 (see below).

The financial institution holding the LIF or LRIF will send a letter to the plan holder in February of each year giving the minimum and maximum withdrawal amounts.

Province-specific information

LIF rules, including the maximum percentage that can be withdrawn each year, vary by province:

• Overview table
• Federally regulated LIFs
• Alberta: Rules, Rates
• British Columbia
• Manitoba,
• New Brunswick
• Newfoundland
• Nova Scotia
• Ontario
• PEI - not applicable
• Quebec: For the public, For professionals, LIF Quick Calc
• Saskatchewan: see the Retirement Options Guide here and "Prescribed RRIFs" below

Note that the LIF rules will change significantly in 2025 for the Province of Quebec. In particular, the upper withdrawal limit will be eliminated. See Retraite Québec.

Transferring excess withdrawals to an RRSP

It is possible to access locked-in funds in a LIF or LRIF by withdrawing the maximum allowed amount and transferring the difference between the maximum and minimum amounts to an RRSP.

Prescribed RRIFs

"Prescribed RRIFs" (pRRIFs) are versions of an RRIF that have similar pension creditor proofing and spousal rights to pensions and the same minimum withdrawal percentages as RRIFs, but no maximum withdrawal. They are currently available in Saskatchewan, where no new LIFs have been allowed since April 1, 2002.

Manitoba residents may transfer 50% of a locked-in plan to a pRRIF.

Income tax is withheld on pRRIF withdrawals that exceed the minimum withdrawal requirement.

Unlocking rules

Provinces have varying rules about unlocking locked-in accounts. For example, there could be provisions for unlocking small accounts, where "small" can be defined as a percentage of the year's maximum pensionable earnings (YMPE). There are also some unlocking provisions related to a shortened life expectancy, financial hardship, and becoming a non-resident.

Manitoba has a full unlocking provision at age 65 or older: "the unlocked funds may be withdrawn as a taxable benefit or be transferred to a RRSP or RRIF if permitted under the Income Tax Act (Canada)".

Some other provinces (Alberta, Ontario, New Brunswick, Federal) offer one-time lump sum partial unlocking option for locked-in accounts, for up to 50% for the balance. The details vary by jurisdiction, see the province-specific links above.

Finally, three provinces (Quebec, Nova Scotia and Newfoundland) allow "temporary income" from a LIF, i.e. extra payments. Such a temporary income is subject to certain rules, for example in Quebec it cannot be more than 40% of the YMPE, and the "LIF contract must offer the option".

Further reading

• Financial Wisdom Forum topic: "LIRA/RRSP"
• Financial Wisdom Forum topic: "LIRA Advice (and restrictions)"
• Financial Wisdom Forum topic: "LIRA / RRSP Consolidation?"
• Financial Wisdom Forum topic: "Transfer value & LIRA?"

External links

• Canadian Finance Blog, LIRA: What Is A Locked-In Retirement Account?