Yes, LIRAs are truly locked in

Choose a maturity option at retirement

Q – I recently left a company after about 10 years, where I had a pension plan that has grown substantially. The plan has been converted into something called a Locked-In Retirement Account (LIRA), and I am unable to withdraw funds from it, even to transfer to an RRSP. This came as a bit of a surprise to me. Can you explain some more about LIRAs and how they work? – Derek B., Oshawa, Ontario

A – When you leave an employer where you had a pension plan, the funds in the plan are transferred to a Locked-In Retirement Account. At times they may also be transferred into a locked-in RRSP. Essentially, these are a special type of registered retirement fund designed to work like a pension plan until you retire. In other words, the plan can hold stocks, bonds, mutual funds, exchange-traded funds, and generally all the qualified investments that can go into a regular RRSP or pension plan. The difference is that you can neither contribute more money nor withdraw funds from the plan. The principle is that these are your retirement funds, and they’ll be locked in until you actually retire, at which point you must choose from a number of maturity options.

LIRAs are governed by provincial regulations, which are pretty strict about the conditions for withdrawals. As the name suggests, generally you may not withdraw or transfer any money from a LIRA before maturity, unless it’s to transfer into another LIRA or a Registered Pension Plan with a new employer.

There are certain very limited conditions under which you may access (or unlock) LIRAs, for example, in cases of financial hardship (including low income as set out in provincial regulations), a balance in all your LIRAs below a level specified by provincial rules, shortened life expectancy. Rules and regulations vary by province, so it’s prudent to check with your advisor if any of these apply in the province in which your LIRA is registered.

In most provinces, you won’t be able to choose a maturity option for your LIRA before you turn 55. In any case, by the end of the year in which you turn 71, at the latest, you may roll over the funds in your LIRA into one or a combination of the following options:

* An immediate or deferred life annuity. An annuity is a contract offered by insurance companies that provides a guaranteed income stream for the duration of the annuity. Rates, payouts, and durations vary widely, and the choices and alternatives can be bewildering.

* A Life Income Fund or Locked-in Retirement Income Fund. These are similar to a Registered Retirement Income Fund, in that you can direct the investments in your account. Withdrawals are subject to annual minimums and maximums as set out by the province of registration.

Retirement income planning can get complicated, especially for current or former members of pension plans who have significant value to their pensions. Choosing the right maturity option for lifetime retirement income can be like navigating a maze of rules and regulations peppered by all sorts of hidden investment traps and tax pitfalls. Your best bet is to consult a qualified independent financial planner (that is, one who is not tied to selling a particular insurance or investment product).

Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 416-828-7159, or by email at rthompson@castlemarkwealth.com for a confidential planning consultation.

Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.