Pension Unlocking

General Questions

1.  Who can unlock funds?

The following unlocking options apply to you if:

1. you were a member of a federally regulated private pension plan; and,
2. your funds in the plan were vested; and,
3. you left the employer sponsoring the plan and took the commuted value of your pension out of the plan and transferred the funds into
• A locked-in Registered Retirement Savings Plan (RRSP);
• A locked-in Life Income Fund (LIF); or,
• A Restricted Life Income Fund (RLIF).

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2. What unlocking options are available?

 
 Terms and conditions for the unlocking options are set out in the Pension Benefits Standards Regulations, 1985.

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3.   How much can I unlock?

• Non-Residency:  Total value
• Shortened Life Expectancy: Total value
• Financial hardship: 
  • 1) Low Income: Based on the expected income for the year; varies from a withdrawal of $23,600 for $0 in expected income, to no permitted withdrawal when expected income is $35,400 or higher (for 2010).
  • 2) High Medical or Disability-Related Costs: The amount of medical expenditures up to a maximum of $23,600 for 2010 provided that medical expenditures exceed 20% of expected annual income.
• One-time 50% unlocking: Up to 50% of the total value may be transferred into a tax-deferred savings vehicle, from which you can then withdraw cash
• Small balance unlocking: Total value, if your total locked-in holdings are below the minimum threshold - $23,600 in 2010.

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4. Can I take advantage of the new options without purchasing a new locked-in fund or amending my existing contract?

Locked-in RRSP and LIF contracts issued before May 8, 2008 did not reflect changes to the Pension Benefits Standards Regulations, 1985. Therefore, if you wish to unlock your pension funds, you may have to purchase a new contract that reflects the amendments to the Regulations, and that allows unlocking under the new provisions.

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5. Do the new options affect provincially regulated pensions?

No. These changes only affect those funds that are regulated federally.

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6. Do the new options affect the pensions of those who were or are employed by the Government of Canada?

These measures only affect those individuals who have transferred their pension credits out of their pension plan.

The Treasury Board of Canada Secretariat is responsible for matters relating to pensions for federal government employees. Therefore, questions about the application of these amendments to federal government employees should be directed to the Treasury Board of Canada Secretariat. Their toll-free number is 1-800-561-7930.

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7. What is the form of withdrawal (i.e. cash or RRSP) for the three new options? 

For both the small amount unlocking and financial hardship unlocking, the funds may be withdrawn as cash, or transferred to a tax-deferred savings vehicle such as a RRSP or a RRIF, subject to any applicable income tax rules.

For the one-time 50% unlocking, the funds cannot directly be taken in cash; the funds must be transferred to a tax-deferred savings vehicle such as a RRSP or a RRIF.

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8. Can I combine these new unlocking options? Can two options be used in the same calendar year?

Yes, as long as all the conditions for unlocking under the relevant option(s) are met. For example, if after using the option for 50% unlocking, the amount left in the RLIF meets the small balance requirements, then that option can be used, either in the same year or in any subsequent year.

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9. Is the maximum annual withdrawal from a LIF separate and in addition to these new options?

Yes, the maximum annual withdrawal is separate from, and in addition to, any unlocking action under the one-time 50% unlocking option, the small amount unlocking option or the financial hardship withdrawal.

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10.  Has anything been done to protect the interests of the spouses or common-law partners of individuals?

Yes. If you wish to unlock funds, you will be required to provide an attestation that proves your spouse or common-law partner agrees to the unlocking.

If you do not have a spouse or common-law partner, you must provide an attestation to this effect.

All attestations must be made before a notary public, commissioner, or other person authorized to take sworn affidavits. Attestations by a spouse or common-law partner do not have to be made at the same time as an attestation by the owner of the funds, or before the same person who takes the fund owner's attestations. 

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11.  What if I can’t locate my spouse?

If you have a spouse or common law partner, his/her consent and attestation is required before you can unlock (Form 2). In a case where you cannot locate your spouse and the spouse’s consent is required, you may wish to speak to a lawyer to find out what your options are.

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12.  When does my pension plan money become locked in?

While you are a member of a pension plan, your money and entitlement are locked in. If you stop being a member of the plan, the Pension Benefits Standards Act, 1985 requires, as a minimum, that your pension money is locked in if:

• For service after 1986, you have two years of membership in the pension plan.
• For service prior to 1987, you are at least 45 years of age and have 10 years of employment or plan membership.

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13.  Can I unlock small amounts when I leave my pension plan?

Your pension plan may give you the option to unlock small amounts. Check with your plan sponsor when you are ending your membership in your plan. If your annual pension benefit payable is less than 4% of the Year’s Maximum Pensionable Earnings (YMPE) for the calendar year in which you stop being a member, your plan may give you the option to have the pension benefit credit to be paid out.

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14.  Do funds become taxable if they are unlocked?

Yes, but only if they are withdrawn.

Withdrawals from all tax-deferred savings vehicles are taxable under the Income Tax Act or other legislation. You should ask for professional advice regarding any tax implications before making such withdrawals.

Direct transfers of funds from one tax-deferred savings vehicle to another are not taxable under the Income Tax Act. An example of this would be unlocking funds from a RLIF and placing the proceeds into a RRSP.

Questions about the tax implications of unlocking should be directed to the CRA at 1-800-959-8281.

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15.  Can I use my locked-in registered retirement savings plan (RRSP) as collateral for a loan?

No. The Pension Benefits Standards Act, 1985 and its Regulations prohibit an assignment, making a charge against, anticipating or using your locked-in RRSPs, including using your RRSP as a security. Any transaction attempting to do so is void. However, funds unlocked in accordance with the Pension Benefits Standards Regulations, 1985 can be used at the individual’s discretion.

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16.  Does unlocking funds affect the protection these funds receive from creditors?

Yes, regardless of whether they are withdrawn or not.

Funds that are unlocked, even if they are transferred to an unlocked tax-deferred savings vehicle such as a RRSP or RRIF will lose the protection from creditors that locked-in funds have.

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17.  Can a creditor force me to use my federal locked-in pension funds to pay off my debts?

No. However, if you choose to convert your funds to a Life Income Fund (LIF), to a restricted LIF, or to purchase an immediate life annuity, the monthly or annual payments could be seized by a creditor. Furthermore, unlocked funds – even if they are transferred to an unlocked tax-deferred savings vehicle such as an RRSP or RRIF – will lose the protection from creditors that locked-in funds have under the Pension Benefits Standards Act, 1985.

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18.  Can I remove the growth/interest from my defined contribution (money purchase) pension plan when returns on my mutual fund investment account are high?

No. You cannot remove the principal or interest while you are a member of a pension plan. If after two years you cease to be a member, both the principal and interest are locked in.

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Questions relating to contracts and addendums (following the changes to the LIF Regulations):

19.  Can my financial institution or advisor update my contracts by simply revising the addendum or is a new contract required?

Subject to the terms of the existing contract, existing locked-in vehicles can generally be amended to reflect the new terms in the Regulations. Financial institutions and clients can amend existing agreements via an addendum, rather than drafting entirely new contracts. Any new or amended contract must incorporate all of the changes to the requirements for LIF contracts.

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20.   Can my financial institution or advisor charge penalties for unlocking early?

Your financial institution or advisor may, at their own discretion, charge transfer fees for LIFs and other such products. Contact the financial institution that holds your Life Income Fund or locked-in RRSP contract to find out.

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21.  Can I take my pension credits out of my pension, put them in a RLIF, and unlock half the value?

The new rules do not affect a plan member’s ability to transfer pension benefit credits out of the plan.

The right to do this under certain circumstances is set out in federal pension legislation and may also be allowed by the terms of the pension plan. If you have the ability to transfer a pension benefit credit out of the plan, the new rules do permit the pension benefit credit to be transferred into a RLIF, from which half of the value can be unlocked.

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Questions about the prescribed forms:

22.  What forms are required for each option?

Form 1 requires you to state your expected income for the current calendar year and, if applicable, state your expected medical expenditures, and attach a letter from your physician certifying that medical or disability-related treatment or adaptive technology is required. The form requires that a calculation be done to determine the maximum permitted withdrawal for the current year. You must then indicate the amount that you wish to withdraw. The form must be signed as a sworn affidavit.

Form 2 requires that you attest as to the existence of a spouse or common-law partner. If you have a spouse or common-law partner and you are not living separate and apart, the consent of the spouse or common-law partner, in the form of a signature, is required to unlock funds. Form 2 notes certain consequences that may arise when withdrawing or transferring funds from a locked-in plan. For example, unlocked funds may lose creditor protection and may be taxable. All signatures on the form must be done as sworn affidavits.

Form 3 must be completed for small amount unlocking. It requires that you list all federally regulated locked-in plans that you own, state the total value of all such plans, and certify that the total value is less than 50% of the Year’s Maximum Pensionable Earnings. The form must be signed as a sworn affidavit. Changes to Schedule II, Form 3: If you hold funds in a pension plan, you should be aware of changes to the application to transfer a pension benefit credit, which must be given to plan administrators before transferring to a locked-in savings plan.

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23.  Where can I obtain the forms required to unlock the funds in my Life Income Fund?

These forms are available from the financial institutions/advisors that offer LIFs and locked-in RRSPs.  If you currently have a LIF or locked-in RRSP, the necessary forms can be obtained from the financial institution that holds your LIF or locked-in RRSP contract. Generic versions of the forms are available on OSFI’s Web site in Word or PDF format. Any other forms required would be supplied by your financial institution or advisor.

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24.  Who is responsible for filling out the forms?

The holder of the LIF or locked-in RRSP is responsible for filling out the forms, including any calculations and certifications.  It is likely that the holder’s financial institutions will help them with the unlocking process including giving them the necessary forms and help in filling them out.

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25.  What are the responsibilities of the financial institution or advisor for verifying the accuracy of individuals’ certifications?

The Regulations do not require that financial institutions or advisors verify the figures provided by a client. 

The role of the notary public, commissioner, or other person authorized to take affidavits is to verify and witness the individual's signature, not to verify the contents of what the individual is certifying to be true.

The Government does not approve forms, nor does it provide assistance in filling out the forms. Therefore, do not send your forms to OSFI or any other Government Department.

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Questions about the one-time 50% unlocking option and the RLIF

26.  When is the date of establishment of the RLIF?

The RLIF is considered established on the date the first of the funds are deposited into the account. Within 60 days of this date, up to 50% of the funds may be withdrawn. 

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27.  Is the withdrawal limit up to 50%, or exactly 50%?

The Regulations allow the unlocking of up to 50% of the RLIF. They do not require the unlocked amount to be equal to exactly 50% of the funds in a LIF. It should be noted that this option is a one-time option and there is no “carry forward” of unused withdrawal room. If you choose to unlock less than 50% of your RLIF, you will not be able to unlock any more funds under this option at a later date.

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28.  What is the date on which the 50% limit is determined? 

The 50% withdrawal limit from the RLIF is calculated as 50% of the funds in the RLIF on the date the actual withdrawal occurs. No more than 50% of the value of the RLIF on that date may be withdrawn.

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29.  Is there a maximum annual withdrawal in year 1 from the RLIF, if transferring from a LIF?

Yes. If funds that were held in a LIF are transferred to a RLIF, you may withdraw a new maximum amount from the RLIF, calculated in accordance with subsection 20.3(1)(f) of the Regulations, i.e. pro-rated for the number of months to the end of the year.

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30    What if the holder of a LIF was receiving their annual maximum withdrawal on a monthly basis, before transferring to a RLIF?

Upon transferring to the RLIF, any payments from the previous LIF cease. A new maximum annual withdrawal amount would be established for the RLIF, based on the amount in the RLIF on the date it is established.

Before transferring funds to the RLIF, you could ask to receive the remainder of the annual maximum withdrawal that had not been paid out.

There is no minimum annual income withdrawal from the RLIF for the year it is established. The transfer from the LIF to the RLIF must be structured in a way that the minimum annual income withdrawal for the LIF is paid out, either wholly from the LIF before the transfer or as the sum of withdrawals from the LIF and the RLIF over the calendar year.

Questions about the minimum annual withdrawal from locked-in retirement savings plans should be directed to the CRA at 1-800-959-8281.

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31.  What if I want to unlock funds under the one-time 50% option from more then one account?

You can transfer funds from a number of accounts either into a single RLIF or into a number of different RLIFs.

Because the one-time 50% unlocking option can only be used within 60 days of the establishment of the RLIF from which the funds are withdrawn, in order for funds transferred from a LIF to be eligible for unlocking under this option, they must be transferred into a RLIF within 60 days of that LIF being established (i.e. within 60 days of when the first funds were transferred into that LIF).  Holders with funds in more than one account may, therefore, wish to transfer funds into more than one RLIF in case some of the funds will not be transferred within 60 days of the time when the first funds are transferred into the RLIF.

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32.  If I unlock 50% of my RLIF and transfer this amount into a regular RRSP, does this put me above my yearly maximum contribution for RRSPs?

The unlocking rules set out in the Pension Benefits Standards Regulations, 1985 are subject to the Income Tax Act. Under the tax rules, a direct transfer of an amount from a locked-in vehicle to an unlocked registered retirement vehicle (RRSP or RRIF) does not require or use up contribution room. The transfer is not considered a new contribution. It is simply a transfer from one vehicle to another. However, withdrawals from the registered retirement vehicle may, of course, have income tax implications. 

Questions about the tax implications of unlocking should be directed to the CRA at 1-800-959-8281.

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33.  For the one time 50% unlocking option, can the funds be transferred to a spousal RRSP?

The Regulations require that the amount withdrawn from a RLIF be transferred to any RRSP or RRIF. They do not require that the transfer be to an RRSP owned by the holder of the RLIF, so a transfer to a spousal RRSP is permitted under the Regulations. However, there may be restrictions and tax implications under the federal Income Tax Act for a transfer to a spousal RRSP. Questions about the tax impact of any such transfer should be directed to the CRA at 1-800-959-8281.

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34.  Can I transfer funds directly from a locked-in savings plan to a restricted locked-in savings plan (RLSP)?

You cannot transfer funds from a locked-in RRSP directly into a RLSP. The only way to transfer funds into a RLSP is from a RLIF.

It would be of no advantage to transfer directly into a RLSP, as the funds would then be “restricted” and the 50% unlocking option could not be exercised. You can move funds from a locked-in RRSP to a RLIF and then to a RLSP. 

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Questions about Financial Hardship unlocking

35.  What is financial hardship? Am I eligible for financial hardship unlocking?

For financial hardship unlocking, there are two types of hardship: 1) low income, and 2) high medical or disability-related costs.

The amount that you can unlock under the low income unlocking option is determined using a sliding scale depending on the holder’s expected income; from a withdrawal of $23,600 for $0 in expected income, to no withdrawal allowed when expected income is $35,400 or more (for 2010).

For financial hardship unlocking based on medical costs, you can withdraw up to a maximum of $23,600 for 2010 if the medical expenditure exceed 20% of your expected annual income. To unlock under this option, you need your physician’s certification.

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36.  What does Expected Income mean?  Is it individual or household income?

This means the individual's "Net Income" as set out in the Income Tax Act, which corresponds to Line 236 on the 2009 T1 General form. This is pre-tax net income. It does not mean household income.

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37.  What is YMPE?

The YMPE (Yearly Maximum Pensionable Earnings) is the maximum amount of earnings on which contributions to the Canada Pension Plan (CPP) are based. 

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38.  For withdrawals based on medical expenditures, who do the medical expenditures have to be for?

The Regulations do not specify who the medical expenditures are required for. The holder must be the one making the expenditures, but those expenditures can be required for the holder or others, including for example a spouse or dependent.

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39.  What kind of medical expenditures does this refer to?

The expenditures must be on medical or disability-related treatment or adaptive technology that a physician certifies is necessary.  It is up to the physician to certify that the treatment is required but the form of the certification is left to the physician.

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40.  What is the 30 day rule?  When does it start?

Generally, you can withdraw for financial hardship once per calendar year.  But if you have more than one locked-in account, you can make a subsequent application within 30 days from the date of the first withdrawal, as long as you meet the necessary conditions for withdrawal.

In that case, you have 30 days from the date of the first withdrawal for financial hardship to fill out and certify another form for the same reason. You must certify that no other financial hardship withdrawals have occurred, other than within the last 30 days prior to the date of the certification. After the second withdrawal for financial hardship, there can be no more withdrawals for financial hardship in the same calendar year.

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