I’ve long been an advocate of joining your company pension plan, if one is available.

But the days are long gone when an employee started at one company and remained there for up to forty years (or more) before being pensioned off.

Today it’s not unusual to have many different places of employment. Some studies show that employees can have as many as 15 – 20 jobs in the course of a lifetime.

Related: Lifetime pension vs. commuted value

What happens to that accumulated pension money when you leave your job?

You may be given these options:

  1. Leave it in the pension plan and collect a pro-rated amount at retirement.
  2. Take all, or part, in cash.
  3. Transfer the commuted value if it’s a defined benefit plan, or full value if it’s a defined contribution plan, and transfer the money into a locked-in retirement account.

Most employees opt to transfer the lump sum into a LIRA unless he or she is close to retirement.

Unlocking a LIRA due to financial hardship

“I can’t understand why I can’t get access to my money.”

This is the most common comment I receive from people who need money. Nothing is quite so disheartening as needing funds badly – and seeing a pile of your own money that you can’t get your hands on.

Related: Do you have a locked-in RRSP?

If you are in financial need, and your expected net income for the calendar year is less than 75% of the YMPE (Yearly Maximum Pensionable Earnings) – $40,200 for 2015 – you can apply to unlock your funds.

A withdrawal of up to 50% of the YMPE is allowed – $26,800 in 2015.

Other eligible reasons

  • If you have high medical or disability related costs you can withdraw up to a maximum of 50% of the YMPE as long as the medical expenses exceed 20% of the YMPE ($10,720 for 2015). The medical expenses can be for the plan holder, or spouse or dependent. A doctor’s certification is required.
  • You or your partner risk eviction from your principal residence due to overdue rent.
  • You need funds to pay first and last month’s rent.
  • You risk foreclosure of a mortgage on your principal residence.
  • You require alterations to your principal residence to adapt to your disability.

You do not have to provide information about your other assets, or prove you have no other assets to qualify.

What information do you need to supply?

Along with your application, you must provide the relevant documents that apply to your particular situation.

Examples include:

  • Copy of eviction notice.
  • Copy of foreclosure notice.
  • Copy of invoice or estimate for medical treatment along with a letter from your doctor stating this treatment is necessary for your condition.
  • Your written explanation detailing your specific hardship and the costs you face. Include any documents proving financial hardship.

You must also include a copy of the most recent statement of your locked-in account.

How often can you make a withdrawal?

Generally, withdrawals can only be done once per calendar year unless you have more than one locked-in account.

Related: Why I save outside of my defined-benefit plan

If you have only one account and the maximum amount permitted was not withdrawn, another application can be made within 30 days of the first withdrawal. The total withdrawal amount must be within the permitted maximum for the year.

All withdrawals are considered taxable income for that year.

Provincial Pension legislation

Rules and regulations vary by province. Normally you would go to the applicable website of the province that regulated your pension plan to download an application form. Follow the instructions and forward it, with other relevant documents, to the Superintendent of Pensions.

If successful you will receive a consent letter. Present this to the financial institution that holds your account to have the funds released.

If you live in Ontario you submit your application to your financial institution for review and processing.

British Columbia, Manitoba and Saskatchewan pensions do not provide an unlocking option for financial hardship.

Final thoughts

The transfer of money from a pension plan to a LIRA does not change the fact that the pension plan was set up to provide you with income for life after your retirement.

For most people, converting the locked-in amount to an annuity upon retirement would be a way to convert it to the secure stream of income that was originally intended.

The Pension Act has finally recognized that there are various legitimate reasons, including current financial hardship, to allow unlocking of these funds.


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