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Unlocking Funds From a LIRA Due to Financial Hardship

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 funds from 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 funds from a LIRA.

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28 Comments

  1. Paul N on February 11, 2015 at 9:16 pm

    I happen to be one of the “lucky” ones to have a long term job in one place and have been contributing to a DC Group pension plan. A big part of why I started to post on blogs is because of the plan I am in and my journey to understand it. That journey has created a lot of skepticism in me of GPP’s in general.

    My advice to everyone is to ask a lot of questions. Ask for the fine print rules that are hidden behind the shiny glossy brochures and the website. I think some people will be surprised when they read up on how it all works particularly when you wind it down.

    I think your second last paragraph is too general of a statement. Many annuities are not well structured, have high fee’s, lock you in with no chance of being able to get out if your situation changes, and finally may leave your surviving family with nothing if you pass on early. So be very careful when considering an annuity as your option. You need to ask all the right questions or a lifetime of savings could “go back in the pool”.

    For example : In my situation I had to look deep and found a disturbing rule that I had 60 days from termination to make a choice of how I want to wind down my plan or it irrevocably and automatically gets put into a high fee annuity. Believe me that will not be prominent on your providers website. You have to squeeze that out of them.

    Sorry I know this doesn’t exactly fit with your theme. I’m not a fan of annuities. They for the most part are pushed by insurance companies because it makes them the highest profits, and are not necessarily the best fit for the individual clients. You pay a big price for that guarantee.

  2. Craig Simpson on February 12, 2015 at 3:42 pm

    I worked in construction for 32 years and retired at 59 in 2007.

    I was able to unlock all my LIRA in 2009-2010. It came from a pension that would of paid $1,500 a month with a 2.5% yearly increase but only $925 a month to my wife.

    We decided to take out it as we would get about the same in interest per year from longer term bonds through our discount broker.

    A $300,000 LIRA would payout almost $18,000 a year but in 20 years, we would still have $150,000 left in our LIRA.

    It does not have to be always a hardship to be worth it to take out 100% of a LIRA.

  3. Craig Simpson on February 12, 2015 at 3:44 pm

    We did not unlock it per say but unlock the yearly $18,000 a year from our LIRA transferred from my union pension plan.

    Sorry for any confusion caused if any.

  4. Sean Cooper, Financial Journalist on February 13, 2015 at 6:07 pm

    Working in the pensions industry I know all about LIRAs. People get so upset when they find out their pension is locked-in. They want to use the money now, not wait until retirement.
    I don’t really agree with the government locking-in pension money. I know that moneys supposed to be for retirement, but we’re adults and can decide how to use our own money.
    While most people don’t want to cash in their RRSPs, at least they have that option – with LIRAs it’s a lot harder. I remember a lady dying of cancer who was about to get evicted with a LIRA. It was pretty sad. Unfortunately, she passed away before she could unlock the funds.
    Although I’m not advocating this, but I’ve heard of stories where you transfer your LIRA to different financial institutions and someone fills out the paperwork incorrectly and it’s suddenly unlocked.

    • Leslie on December 21, 2015 at 8:12 pm

      What do you mean in your last paragraph? There’s a loophole? I desperately need access to mine. I have over $300k in it. I’m only 35. I need access to the money to either finish getting my degree, or to pay legal fees to get full custody of my kids and child support. This is my most immediate concern but I also need the degree. My ex is cashing his out, which releases my share of his, and I have to select where to put it. I want to pick an institution that will make it easy to get out. I’m in BC. Any advice?

      • Ken Kelly on January 30, 2017 at 11:35 am

        was there an answer to this?

    • michael on February 21, 2017 at 2:31 pm

      I have $33,000 in a LIRA.It is ontario based and the union based co. was closed last year.I will be 54 in Apr.2017..and am living/working in BC..The expense shock to make it here is very tough.I had a work related comp. injury..5 weeks till any money came in..then got behind and it snowballed.Now i face behind in rent,i have no tech skills..and can,t live healthy at $17 an hr. My vehicle is on its way down with issues..and i was told i can apply for Hardship ONLY 30 after my birthday..this would get me out of debt..believe me i,d love to even eat 3 meals a day.

  5. Garland on February 18, 2015 at 11:52 am

    Locked-in RSP so we have to follow the government rules/regulations is what my bank told me and after my allotted amount was released 30% was taken.

    For financial hardship taking 30% is very unfair and seems like a crime. I live in Ontario and my funds are in a TD Bank.

    Is there anything I can do to stop them from taking so much money from me?

    • Boomer on February 18, 2015 at 1:31 pm

      @Garland: Was the 30% withholding tax? You claim the tax paid on your income tax return, and, if you are in a low income bracket you may get some or all of it refunded.

  6. JC on November 26, 2015 at 5:54 pm

    I have a scenario that I am looking for guidance on. A friend of mine recently moved and was forced to put the previous employers pension plan in a locked in RRSP. However, they noticed that the money was accidentally deposited in to a regular RRSP plan by mistake, so they can technically draw out the money. Is it fair to say that they could proceed with transferring the money for their financial hardship or is there a chance that the government could come back later and say that it was incorrectly deposited into the wrong account so it will have to be paid back? Does anyone have an idea?

  7. Tara on January 2, 2016 at 12:23 pm

    The rules seem very vague. With the new by rules in place I hoping to withdraw from my rrsp under the new financial hardship low income. I am hoping it isn’t a huge hassle. If I declare my income is 0 I should be able to get the max. I plan on returning to school and this wi bey hope of doing that. I just wonder what other stipulations or documentation the bank may require in order to approve this? I spoke to ficom and they really didn’t answer my question. Has anyone in BC had success under the new rules?

    • boomer on January 10, 2016 at 12:07 pm

      @Tara: Go to http://www.ficombc.ca/pdf/Pensions/SOP-FHU2015.pdf to download your application. It contains all the information you need regarding income and maximum withdrawals. Then contact the financial institution holding your LIRA to process the application. Don’t forget you will have to pay withholding taxes and your financial institution may charge a processing fee.

      You can only make one withdrawal for financial hardship in a calendar year.

  8. Justin on February 27, 2016 at 4:45 pm

    If I was to take out 5000 from my lira under financial hardship how much tax would they take from me(estimated ) and will that tax taken from the money I took out benefit me come income tax or not?
    Thanks

    • boomer on February 27, 2016 at 6:46 pm

      @Justin. $500 will be taken as withholding tax by the financial institution holding your LIRA. When you complete your 2016 income tax (next year) you will declare it as “taxes paid” (line 437). Depending on other income, you may receive all or part of it refunded to you.

  9. Amanda on March 4, 2016 at 2:57 am

    So because I live in BC and have quit my job that I have been at for 6 years.I have over 18,000$ in my rrsp’s, there’s no way I’d be able to unlock half my rrsp’s that I have through Great West Life due to financial hardship?

    • Paul N on March 4, 2016 at 9:12 am

      Is that a group rrsp (work pension plan?) or a personal one?

    • boomer on March 4, 2016 at 10:47 am

      @Amanda: BC has recently allowed financial hardship to their LIRA unlocking regulations. See the link above in the reply to Tara to download an application and see if you qualify. Note: You don’t really specify what type of plan you have. If you don’t have a LIRA – just a regular RRSP – you can withdraw any amount at any time.

  10. joanne young on May 18, 2016 at 11:39 am

    I have 125.000 rrsp locked in with td, can I transfer to a lira in order to cash this in?

  11. joanne young on May 18, 2016 at 11:42 am

    how long does the initial paper work take in order to transfer my locked in RRSP into a Lira in order to take money from it?

    • boomer on May 19, 2016 at 9:21 am

      @joanne young. This depends on a lot including your age, income and which province your original pension was regulated by.

      I suggest you make an appointment with your banker to see if you are eligible and get the necessary paperwork. They can also tell you how long it will take.

  12. Tuqani Ugyuk on August 8, 2016 at 3:19 pm

    I recently applied to take half of my GIC as told by RBC advisor. We am 55 years of age. I was under the impression that it should not take long. The gic is now in LIF waiting for maturity date to pass in October to transfer to the RRSP account. That is when I can withdraw they said. I wish advisers know what they are doing. My reblnt us overdue, I have to pay for my child braces, I have no furniture due to bed bugs. If I had known it was going to take two month or more to get organized and would have gone through the financial hardship process. It’s seems there is a need to kero delaying for whatever reasoning. We don’t appreciate being misinformed and wish if you going to have advisors, please make sure they kniw what they are doing.

  13. Susie on January 18, 2017 at 11:02 am

    I have a locked in LIRA. I live in Ontario but I have a Quebec pension. They have strict rules about unlocking. I recently lost my job and am in need of these funds. Is there anyway around unlocking this money? Any loopholes?

  14. John Casalini on February 24, 2017 at 9:12 am

    I have a locked in rrsp of 18000 would like to accsess half of it due to financial hardship how much money will I see after all is said and done?

  15. Kwame Manu on March 1, 2017 at 1:24 pm

    If a person has a medical expense withdrawn from their LIRA and a big chunk is taken out for taxes, how can a person pay for the medical expense if the amount is below required?

  16. Laura Genaille on January 25, 2018 at 1:01 pm

    Yes i live in manitoba and would like to take my money out from my lif its only 15000 for hardship why cant i do this

    • Lisa on March 19, 2018 at 5:49 pm

      I’m in Manitoba as well and in financial hardship I need half my money I’m having a hard time I have afib as well I will have to go on welfare as my eia has run out.

  17. Samantha on March 16, 2019 at 5:03 pm

    My employer (in Quebec) decided to cancel our DCPP pension plan because they no longer wanted to administer it. We are told we have to move the moneys to a LIRA wherever we want. If I am not retiring anytime soon, am still still employed at the same place and am 60, what other options might be available to me under these specific circumstances?
    I would really need to unlock just $10,000 (taxable) to buy a new used car so that I can continue working. Could the hardship clause cover that if I am in my 2nd year of a bankruptcy?
    Any suggestion would be appreciated. Thank you

  18. sherry on June 4, 2019 at 10:14 am

    I am the owner of a LIRA. Can my spouse withdraw from the LIRA due to financial hardship?I was able to withdraw funds from the LIRA earlier this year. We are both under 55years.

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