Locked-In Retirement Account (LIRA)

What Is a Locked-in Retirement Account?

A Locked-in Retirement Account (LIRA) is a type of registered pension fund in Canada that does not permit withdrawals before retirement except in exceptional circumstances. The locked-in retirement account is designed to hold pension funds for a former plan member, an ex-spouse, or a surviving spouse.

Cash withdrawals are not permitted while the funds are locked in. Pension funds that are transferred to a LIRA can be used to purchase a life annuity or can be transferred to a life income fund (LIF) or a locked-in retirement income fund (LRIF).

Once the fund's beneficiary reaches retirement age, the life annuity, LIF, or LRIF provide a pension for life.

Understanding the LIRA

A LIRA may be created to hold funds that are transferred from a pension plan for a variety of reasons. The beneficiary may have left the job. The fund may be split with a divorced spouse, or the beneficiary may have died, leaving the fund to an heir.

A Registered Retirement Savings Plan (RRSP) can be cashed in at the owner's discretion. The LIRA does not have such an option.

Government Requirements for LIRAs

According to the Quebec government website:

Unlike an RRSP, the funds in a LIRA are locked-in and can only be used to provide a retirement income. Thus, the amounts cannot be withdrawn, except under certain circumstances in which a refund from your LIRA is permitted. Like an RRSP, you can hold a LIRA until Dec. 31 of the year in which you reach age 71. Before that date, you can transfer your LIRA to another LIRA, for example, if you change financial institutions. You can also transfer your life income fund (LIF) to a LIRA, in particular when you want to postpone payment of a retirement income. Consult the list of financial institutions offering LIRAs or LIFs to find out what transfer instruments are available.

LIRA plans are governed by federal or provincial pension legislation. Depending on the province in which the plan owner lives, there are different rules on how to unlock locked-in pension funds. Every locked-in pension must comply with the legislation of a specific province or the federal legislation.

The owner of a LIRA can transfer the money to another retirement account.

Various allowable reasons for unlocking a LIRA include low Income, potential foreclosure, eviction from a rental, first month’s rent and security deposit, high medical or disability costs, shortened life expectancy, and permanent departure from Canada.

Unlocking 50% of a LIRA can be done one time if you are 55 years old or older in some provinces and federally. Small balance unlocking is allowed if the balance is under a certain amount.

It's best to consult a financial advisor if the amounts involved are substantial.