ARTICLES  &  REVIEWS

Rules for Ontario Locked-in Accounts

London Free Press

Throughout the years Mr. & Mrs. Smith have worked hard to save their money so that one day retirement is not just a word but reality.  When that day finally arrives it is cause for a celebration.  What is the first thing that they want to do?  Perhaps they want to go on that vacation that they were just too busy to have the time to plan.  This will be their reward for all their hard work over the years.  Is that not what retirement is all about?

Perhaps like Mr. & Mrs.  Smith, you worked towards retirement by making contributions to a company that sponsored a registered pension plan (RPP). Once you leave your place of employment or if the company’s pension winds down, the pension and accrued benefits need to be transferred to another pension plan like a “Locked-in” account. If you are of pension age, your pension and accrued benefits would be transferred to a deferred Locked-in Retirement Account (LIRA), a Life Income Fund (LIF) or a Locked-in Retirement Fund (LRIF).   In Ontario, the required age to receive pension benefits is age 55. 

Depending on the originating plan, the rules of the Locked-in assets are governed by Federal or Provincial pension laws. Pension legislation requires that pension funds cannot be “cashed out” to ensure that the pensioner will receive benefits over the course of their retirement.  In fact, the annual payouts on a LIF and LRIF are subject to minimum and maximum withdrawals. 

So what if Mr & Mrs. Smith’s yearly maximum withdrawal in their “Locked-in” account does not cover the expenses of their long-awaited trip. Are there any alternative options to changing the maximum yearly amount so that they can withdraw more?  Are they supposed to wait until next year when the next payout is released?
In July 2007, the Ontario government passed legislation to make it easier to access “Ontario” governed pension funds.  Effective January 1st 2008, individuals could open a  “New LIF”  which gave account holders more flexibility to unlock and withdraw up to 25% of their total market value transferred into  their “New LIF”plan.  This transfer to the “New LIF” could originate from a LIRA, LRIF, Old LIF or other existing pension plan.

Once the assets were received in the “New LIF”, withdrawal of the unlocked portion (up to 25%) needed to be transferred within 60 days. This one time withdrawal (up to 25%) would be transferred to a RSP or RIF depending on the individual’s age.

 The advantage of unlocking a pension and opening up a RIF plan is that RIF’s are not subject to maximum yearly withdrawals. Therefore, Mr. & Mrs. Smith would be able to withdraw that extra money needed for that hard-earned vacation. Keep in mind, any monies withdrawn from RIF’s that exceeds the annual minimum amount are fully taxable as income.

As of June 2009, the Ontario government passed new legislation that provided pensioners the opportunity to unlock additional money provided they fit certain criteria.  As of January 1st, 2010, individuals who had not previously unlocked a pension and who transfer their Locked-in pension plan to  a  “New LIF’ have the one time opportunity of unlocking 50% of the total market value of the “New LIF” account.  The additional 25% from the previous 2007 legislation gives the owner additional flexibility. Rules regarding the transfer time allotted (60 days) and age of a pensioner remain the same as the 2007 legislation.

For individuals who have already unlocked their account to a “New LIF” before December 31, 2009, new legislation will allow the opportunity for an additional 25% to be unlocked from January 1, 2010 to December 31, 2010 only.

There are additional rules and regulations as well as other changes brought forward by the Ontario 2009 provincial budget in unlocking “Ontario” pensions.  As every situation is individual, please consult with your financial institution as they will provide you with more information. As well, the Financial Services Commission of Ontario at www.fsco.gov.on.ca provides the details of these changes and FAQ for your convenience.

By unlocking their pension plan, and opening up a RIF, Mr. & Mrs. Smith now had the flexibility to withdraw enough money needed to pay for that hard earned vacation.  They were prudent to withdraw just enough to cover the costs of their trip, and will be careful to work with their advisor to continue monitoring their investments for financial security.