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Locked-In Accounts

Understanding Locked-In Plans

A Locked-In Retirement Account (LIRA), and the virtually identical Locked-in Retirement Savings Plan (LRSP), are Canadian investment accounts designed specifically to hold locked-in pension funds for former plan members, former spouses or common-law partners, or surviving spouses or partners. Funds held inside LIRAs/LRSPs will normally only become available (or "unlocked") to holders upon retirement.

Meaning of Locked-In

The distinction between a LIRA/LRSP and a Registered Retirement Savings Plan (RRSP ) is that, where RRSPs can be cashed in at any time, a LIRA/LRSP cannot. Instead, the investment held in the locked-in account is "locked-in" and cannot be removed until either retirement or a specified age outlined in the applicable pension legislation (though certain exceptions exist). Another important distinction between regular RRSPs and LIRAs/LRSPs is that once funds have been transferred from a company pension plan to a LIRA/LRSP, further contributions cannot be made into said LIRA/LRSP. Any monetary amounts earned in the LIRA/LRSP through investment are also considered to be locked-in.

Types of plans – Retirement Savings and Retirement Income

Locked-in Retirement Account (LIRA), Locked-in Retirement Savings Plan (LRSP), and Restricted Locked-in Savings Plan (RLSP) are locked-in versions of a Registered Retirement Savings Plan (RRSP) to which no contributions can be made.

Life Income Fund (LIF), Locked-in Retirement Income Fund (LRIF), Prescribed Retirement Income Fund (PRIF) and Restricted Life Income Fund (RLIF) are locked-in versions of RRIFs. No contributions can be made and withdrawals are subject to annual minimums and maximums.

Provisions for Holding a LIRA/LRSP

Employees who have Registered Pension Plans (RPP) and who remain with their company until retirement age will receive income for life at time of retirement. However, at the time of termination of membership in a company pension plan preceding retirement, death before retirement (whereby funds become property of surviving spouse or partner), or the breakup of marriage or common-law relationship, holders must transfer their funds into a LIRA/LRSP and hold them there until retirement.

Converting to LIF/LRIF/PRIF or Life Annuities

At retirement, holders must convert their LIRAs/LRSPs into Life Income Funds (LIF) or Locked-In Retirement Income Funds (LRIF) which will provide pension income during retirement. Instead of converting to a LIF or LRIF, holders may opt to use the proceeds of their LIRA/LRSP to purchase a life annuity from an insurance company. The provision that used to exist mandating the changes from LIF/LRIF/RLIF to Annuities is no longer in force for most legislations.

Under Saskatchewan legislation, LIF and LRIF are not permitted. LIRA are now transferred to Prescribed Retirement Income Funds (PRIF). Manitoba also offers a PRIF alternative.

Pension Legislation

LIRAs/LRSPs are registered either federally or provincially at the time of transfer from the company pension plan to the LIRA/LRSP. Though some accounts are registered federally, the bulk of locked-in accounts are registered under the legislation of a specific province. The primary differences which exist from province to province involve the minimum age required for withdrawal (i.e. when conversion to LIFs and LRIFs is possible) and the special provisions by which locked-in funds may be unlocked early.

Difference Between LIRAs and LRSPs

LIRAs and LRSPs are essentially identical in structure.

LIRA refers to a provincial Locked-in Retirement Account, while LRSP refers to a federal Locked-in Retirement Savings Plan (RSP). The two accounts serve identical purposes.

Benefits of Locked-In Plans

  • Moving vested amounts into a locked-in account provides diversification.
  • Full and direct access to a range of investment options that are typically more limited in a pension plan.
  • Helps avoid uncertainty with respect to retirement income from future instability or uncertainty of an employer.
  • While locked-in plans can be strict with regards to withdrawals, certain jurisdictions may permit access to funds that are locked-in.
  • Certain jurisdictions may permit a client to unlock a lump sum amount as a one-time event.

Who should Invest?

Investors Who:

  • Have left a former employer and have vested contributions.
  • Would like more diversification as part of their retirement savings.
  • Are concerned about the stability of their retirement savings with current employer.
  • Want more control over their investments.
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