Guide to Locked-in Retirement Account (LIRA) in Ontario

Find out everything you need to know about the Locked-in Retirement Account (LIRA).

12 Minute read
Originally published: April 5, 2022
Updated: May 26, 2022

Guide to Locked-in Retirement Accounts in Ontario

Find out everything you need to know about the Locked-in Retirement Account (LIRA).

12 Minute read
Originally published: April 5, 2022
Updated: May 26, 2022

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Welcome to our guide on Locked-in Retirement Accounts (LIRA) in Ontario! We will cover everything that you need to know about LIRA’s. LIRA’s are great accounts to help you maintain your previous jobs pension or a pension plan from a former spouse, they can be used to invest to add more income to your pension, but the main catch is that they are locked up until you retire and convert it to a Life Income Fund (LIF), a Locked-in Retirement Income Fund (LRIF) or an annuity. Though there are rare cases of being able to unlock your LIRA, there are also other rules surrounding a LIRA. We will cover the pros and cons, how a LIRA works, and also how the LIRA compares to the Registered Retirement Savings Plan (RRSP).

What is a Locked-in Retirement Account (LIRA)? 

The locked-in retirement account (LIRA) is a registered pension fund that is a locked-in account that will hold a pension plan from a former employer of yours, from your ex-spouse, or a surviving spouse. The funds in the account remain locked until your retirement, and must be transferred into a life income fund (LIF), a locked-in retirement income fund (LRIF), or the LIRA funds can be used to purchase an annuity to be accessed. You will then receive payments throughout your life when you are retired. The rules regarding LIRA accounts are regulated by the government and vary from province to province. 

Benefits of a LIRA

8 Reason Why You Should Open a Registered Retirement Savings Plan (RRSP)

  • Safeguard Your Pension: A LIRA protects the pension that you earned. It provides you more peace of mind to know that your LIRA is protected by you and your financial institution rather than your former employer.
  • Tax-deferred funds: Funds with your LIRA remain tax-deferred so long as they are in your LIRA account. This is beneficial because when you finally receive your funds, your tax rate will most likely be less since you are retired.
  • Room for growth: The LIRA account is locked away until you are retired, unlike an RRSP you can’t make contributions, but luckily, you can invest with your LIRA account thus make more money to add to your LIRA.

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Benefits of a LIRA account include tax-deferred funs, room for growth, and safeguarding your pension

What is a Locked-in Retirement Income Fund (LRIF) 

LIFs and LRIFs are tax-advantaged accounts that pay out the accumulated value of a locked-in RRSP, a locked-in retirement account (LIRA), or locked-in amounts under a registered pension plan (RPP). This money, unlike the money you put into your personal RRSP, must be used to fund your retirement. These accounts are intended to provide a long-term source of income. However, there are some limitations. You won’t be able to cash out your LIF or LRIF in most cases. The government establishes a minimum and maximum amount of money you can receive from your LIF or LRIF each year.  You can, however, control your investment options and payment amounts within this range.

Two major differences between LIF and LRIF accounts are: 

  • In certain provinces, remaining funds in a LIF must be converted to a life annuity when you turn 80 years old. However, the LRIF doesn’t have to be converted to a life annuity.
  • The maximum amounts are different between the LIF and the LRIF.

How does a Locked-in Retirement Account (LIRA) work? 

Typically, a Locked-in Retirement Account works when you leave a job that had a pension plan, or funds may have been split from a divorce, and your funds might have been transferred into a Locked-in Retirement Account so that you do not have access to it until you are retired. This account can also be made at your discretion if you want, so that the money is tucked away safely for when you retire. To access these funds, you will first need to be retired, then you will need to transfer the funds into a Life Income Fund (LIF), an annuity, or a a Locked-in retirement income fund (LRIF).

Pros of having a Locked-in Retirement Account (LIRA)

  • Funds are tax-deferred while they are in the LIRA

  • Makes saving easier for people who might be tempted to use their pension funds earlier than they should

  • Safeguards the pension that you are entitled to. You have control over your funds, rather than a former employer. 

  • Eliminates the risk of losing your pension in the event that your former employer goes out of business.

  • Possibility to invest with your LIRA funds

Cons of having a Locked-in Retirement Account (LIRA)

  • High management fees in several financial institutions

  • Regulations vary from province to province, this can make it difficult to complete understand the rules surrounding your LIRA 

  • Strict restrictions on withdrawals prior to retirement

Unlocking a Locked-in Retirement Account (LIRA) in Ontario

To unlock a LIRA in Ontario there are specific rules and regulations that apply that you must follow, these rules differ province to province so if you’re reading this blog and not from Ontario please take a look at the rules regarding the LIRA in your province. 

In Ontario, there are five financial non-hardship categories that are considered when unlocking your LIRA. These are the following categories that are considered: 

Unlocking a LIRA 🔓

5 financial non-hardship categories that can lead to your LIRA being unlocked:

  • Life expectancy is shortened by 2 years due to a illness or a physical disability
  • You are 55 years old or over and the funds in all of your locked-in accounts is less than 40% of the Year’s Maximum Pensionable Earnings (YMPE)
  • When the money transferred into the LIRA is over the federal Income Tax Act LimitGuide to Locked-in Retirement Accounts in Ontario
  • If you are a non-resident of Canada and it has been over 24 months since you left Canada
  • You transferred money into an Ontario life income fund that is governed by the requirements of Schedule 1.1 and, within 60 days of this transfer, you want to withdraw or transfer up to 50% of the total money that was transferred to the Schedule 1.1 LIF

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There are other reasons that you may also be able to unlock your Locked-in Retirement Account in Ontario. These reasons have to do with financial hardships you might encounter if you don’t access your LIRA. Here are the financial hardships categories that will allow you to unlock your LIRA Ontario: 

  • Low income or expectation that your income will become very low 
  • Potential foreclosure of your home
  • Potential of being evicted by your landlord due to late or missed payments
  • Security deposit, or first month’s rent
  • High medical bills or disability related expenses

Remember to be aware of the laws and regulation regarding LIRA legislation in your province, and always reach out to an expert financial advisor to find out what is best suited for your financial situation and plan.

How to transfer your Group Pension

Many people have had a great group pension job at the job that they have recently left, now luckily with a LIRA you can transfer your group pension. There are just a couple of important step that you must follow in Canada in order to ensure you transfer your group pension properly.

Pension Transfer Agreement (PTA)

By transferring funds from your former employer’s pension plan to your new employer’s pension plan in an amount equal to the actuarial value of the benefits earned in relation to your pensionable service credits, you can increase your pension assets through a pension transfer agreement (PTA).

You might be able to transfer your pensionable service credit to your new pension plan when you leave one employer and start working for another while also enrolling in their pension plan. One way to carry out such a transfer is with a PTA. A PTA must have been signed between the Government of Canada and an outside employer in order for either party to take part in such an arrangement.

Alternatives to PTA

If your former employer is not one of the organisations with whom a PTA is listed, then the PTA may not be a legally binding contract. You must get in touch with your former employer to see if they are interested in negotiating a PTA with the Government of Canada if there is no agreement in place and you want to pursue the PTA option. You might want to look into the possibility of a Service buyback package as an alternative to a PTA (also known as elective service).

In order to increase your amount of pensionable service under the federal public service pension plan, you may enter into a legally binding agreement known as a service buyback. It might also cover any prior time spent working for the federal government or any pensionable employment with another employer.

Transferring your prior pension out of OMERS

There are plenty of options out there if you are leaving your job which has a pension with OMERS, this transfer can be done and these are your options:

  • Receive a future stream of lifetime retirement income by sticking with OMERS for your pension. After turning 55, you can begin receiving a pension at any time;
  • If you start working for a new OMERS employer, combine your old OMERS record with your new membership;
  • Transfer your benefits to a different Canadian registered pension plan;
  • Transfer your OMERS benefits’ commuted value to a locked-in retirement vehicle at the financial institution of your choosing.
  • The OMERS pension’s present value, computed at a predetermined rate, is the commuted value.

Regardless of your circumstance and the direction that you want to go, our financial advisors will be happy to help you throughout this difficult process!

Transferring your prior pension out of HOOPP

There are three options available to you if you decide to leave your HOOPP employer before your pension has started:

  • Defer your pension or keep it with HOOPP
  • Change to another defined benefit pension plan
  • Transfer to a registered retirement plan, annuity or a locked-in retirement account

Once you know that you are eligible to switch your pension out and meet all the requirements remember:

  • When switching to another defined benefit (DB) pension plan. If your new employer has a DB pension plan and you are under 65, you might be able to transfer the worth of your HOOPP benefit into it. When a tax-free transfer is possible, we will, if necessary, collaborate with you and your new employer’s plan administrator.
  • Transfer to a defined contribution (DC) pension plan or locked-in retirement account. You can transfer the value of your pension, if you are under 55, to a locked-in retirement account (LIRA) or, if your new employer has one, to their DC pension plan.

Locked-in Retirement Account (LIRA) Eligibility 

You must be 71 years old or younger to unlock a LIRA account, but to open a LIRA account you must have an employee-sponsored pension from a former employer. If you have an employee-sponsored pension from a former employer you can decide to let them hold your pension until your retire, or you can transfer the pension to a LIRA account and safeguard it with a financial institution and use it in some cases, or invest the amount in the fund with the help of a financial planner. You are also eligible to have a LIRA account if you have a pension plan set up with your former spouse or a deceased spouse.

Talk to a seasoned financial advisor today!

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Locked-in Retirement Account (LIRA) vs Registered Retirement Savings Plan (RRSP)

Both of these accounts are great for retirement planning, and although the Locked-in Retirement Account (LIRA) and the Registered Retirement Savings Plan (RRSP) have slight similarities, there are some bigger differences between the two. It is important to know what is best for your retirement plan and what is better suited for you. The primary difference between the RRSP and the LIRA is that in a RRSP you make contributions yourself whereas in a LIRA it is from an existing pension plan from a former employer or spouse. 

LIRA

(Locked-In Retirement Account)

RRSP

(Registered Retirement Savings Plan)

What kind of savings account is it?
  • Retirement savings account
  • Retirement savings account
How to start the account?
  • Must be a Canadian resident
  • Must be 71 years old or under
  • Have an income
  • Contact us
How does tax affect this account?
  • Money won’t be taxed until it is withdrawn
  • Money won’t be taxed until it is withdrawn
  • Tax deductible to a certain limit
When can you withdrawal your money?
  • When you retire and turn the account into a retirement income account
  • Can make withdrawals anytime but they are taxable, and withdraw rules vary depending on type of account and legislation
How to contribute?
  • Cannot make contributions but can transfer funds from another locked-in account
  • RRSP contribution limit for 2022 is $29,210
  • RRSP contribution limit for 2023 is $30,780
What happens to the account when you retire?
  • Turn account into a retirement income account by the end of year that you turn 71 years old
  • Turn account into a retirement income account by the end of year that you turn 71 years old

Investing with a Locked-in Retirement Account (LIRA)

The availability to invest with a LIRA is a very attractive feature of the LIRA. There are strict rules regarding investing your LIRA and it is best to contact a financial advisor to find out what your investment eligibility is. Typically, an LIRA can be used as an investment vehicle like an RRSP or TFSA, meaning that you are able to invest with a LIRA in GICs, ETFs, mutual funds, stocks and bonds. Remember that you are not able to contribute money into the LIRA like you would with an RRSP or TFSA, and you cannot withdraw any income earned on the LIRA investments but they can be added to your LIRA for future investment and access.

How to withdraw money from a Locked-in Retirement Account (LIRA)

As listed earlier, opening a Locked-in Retirement Account (LIRA) in Ontario requires you to meet specific requirements to be considered eligible for unlocking your LIRA. To fully understand your eligibility and to find out if it is right for you to unlock your LIRA without any violations, you should contact a financial advisor to help guide you through the process. 

Generally, people in difficult financial situations may be able to withdraw funds from their LIRA account. Those who have low incomes, are facing foreclosure on their home or eviction from a rental property, require cash to pay the first and last month’s rent on a new lease, or are facing significant expenses due to medical problems or a disability are eligible. You may be allowed to withdraw funds early if you have a shortened life expectancy (supported by a doctor’s report). People who require cash to pay child or spousal support may also withdraw funds. If the LIRA account has a small balance, you may be able to withdraw the entire balance. 

Frequently Asked Questions (FAQs) about Locked-in Retirement Account (LIRA)

A LIRA is a locked-in account that will hold an employee pension plan from a former employer of yours. The funds in the account remain locked until your retirement, and must be transferred into a life income fund (LIF) to be accessed. You will rarely have access to unlock your locked-in retirement account, but it is possible in certain emergency situations. 

It is honestly simple, the pension you’ve earned from a former employer is put into an account and is locked-in until you retire. When you retire you can transfer the amount in the LIRA into a life income fund (LIF) to receive your pension payments.

You can unlock up to 50% of your LIRA when you are 55 years old, or older in most provinces. You are also allowed to withdraw small amounts from your LIRA as long as it stays under a certain amount. Alternatively, in certain emergency situations you can withdraw money from your LIRA prior to retirement.

Once you turn 71 years old you can transfer your LIRA amount into a life income fund (LIF), this will then provide you payments from your pension throughout your retirement. 

There are indeed some ways that you can access the money in your locked-in retirement account. Most of these reasons would be due to emergency situations such as illness and loss of income. The rules do vary for each province, but to unlock locked-in retirement account in ontario here are the rules directly from the Financial Services Commissions of Ontario:

  1. Life expectancy is shortened by 2 years due to a illness or a physical disability 
  2. You are 55 years old or over and the funds in all of your locked-in accounts is less than 40% of the Year’s Maximum Pensionable Earnings (YMPE)
  3. When the money transferred into the LIRA is over the federal Income Tax Act Limit
  4. If you are a non-resident of Canada and it has been over 24 months since you left Canada
  5. You transferred money into an Ontario life income fund that is governed by the requirements of Schedule 1.1 and, within 60 days of this transfer, you want to withdraw or transfer up to 50% of the total money that was transferred to the Schedule 1.1 LIF

The savings and investments aren’t taxed in the LIRA account but can be taxed when they are withdrawn from your LIRA, and transferred to a Life Income Fund (LIF). The tax won’t be deducted from your LIRA at once but rather you will be taxed on your scheduled LIF payments.

Yes, the funds in the locked-in retirement account can be used to invest in GICs, mutual funds, stocks and bonds. Keep in mind that you can’t put in additional funds but you can invest with the funds that are in the LIRA and add the income earned to the LIRA.

The income earned from a LIRA will be accumulated tax-free but you will pay taxes when you withdraw the funds. Therefore, this is a tax-deferred account not a tax-free account.

No, you do not need to make a new LIRA if you leave another job with a pension plan, what you could do is put the pension plan amount into the same LIRA. You must have this second pension plan from a job within the same province as the previous job which gave you the first pension plan. 

The minimum age that you can unlock your LIRA account is at age 55 and the latest you can unlock it is 71 years old. 

You can contact us to help us guide you and assist you in transferring your OMERS pension

  • Receive a future stream of lifetime retirement income by sticking with OMERS for your pension. After turning 55, you can begin receiving a pension at any time;
  • If you start working for a new OMERS employer, combine your old OMERS record with your new membership;
  • Transfer your benefits to a different Canadian registered pension plan;
  • Transfer your OMERS benefits’ commuted value to a locked-in retirement vehicle at the financial institution of your choosing.

You can contact us to help us guide you and assist you in transferring your HOOPP pension

  • Defer your pension or keep it with HOOPP
  • Change to another defined benefit pension plan
  • Transfer to a registered retirement plan, annuity or a locked-in retirement account

Wondering if the Locked-in Retirement Account is right for you? 

The LIRA is a great account for anyone who has an existing pension plan and would like to safeguard it, invest with it, and keep it tax-deferred for the long run. This account is for those who want to lock away their pension so it is not at risk of being spent, out of sight, and out of mind can ensure that in your retirement you have peace of mind! If you want to learn more about the Locked-in Retirement Account check out our LIRA page which has answers to all of your questions about LIRA’s in Ontario.

At Protect Your Wealth, we’ve been providing expert advice for all types of life insurance, and retirement and investing planning, since 2007. As your Life Insurance broker and financial planner, we work with you to create a personalized plan for your family or business that covers and meets your needs.

Contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today. We’re proudly based out of Hamilton, and service clients anywhere in Ontario, including areas such as GuelphKitchener, and Barrie.

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