Edmonton... Albertans leaving a Registered Pension Plan will have better access to their retirement savings as the result of changes to Employment Pension Plans Act regulations. Effective November 1, people have a one-time option to unlock up to 50 per cent of their locked-in pension contributions after exiting an eligible pension plan.

"Albertans are looking for greater flexibility in managing their retirement savings," said Finance Minister Shirley McClellan. "The regulation changes strike the right balance. Half of the eligible retirement savings will remain locked to ensure Albertans have a stable source of income during their senior years, while the remaining amount can be unlocked to allow increased individual control over retirement income."

To qualify, Albertans must be at least 50 years of age and have written consent from their pension partner. The unlocking option is exercised when income starts to be withdrawn from locked-in retirement savings. This occurs when funds from a Locked-in Retirement Account (LIRA) or eligible pension plan are transferred to a life annuity, Life Income Fund (LIF) or Defined Contribution Retirement Income Account (DC-RIA).

Unlocked assets can be transferred to another tax sheltered vehicle like a Registered Retirement Savings Plan or taken as a cash payout that is subject to taxation.

Holders of an existing LIF or Locked-in Retirement Income Fund (LRIF) also have the option of unlocking 50 per cent the fund's value, but must make their decision by December 31, 2007. After that date, unlocking can only be done when a person is opening a new LIF, life annuity or DC-RIA.

Effective August 10, regulation changes governing LIFs will allow increased access to the remaining locked-in funds. Maximum yearly withdrawal limits have been enhanced to allow greater flexibility during fluctuating market conditions. LIF holders will no longer be required to convert the fund to a life annuity at age 80 and pension partners will be allowed to waive beneficiary status.

The regulation changes also allow LIFs and LIRAs to be invested in a personal or close relative's mortgage.

The LIF improvements have eliminated the need for LRIFs, which will be discontinued effective December 31, 2007.

Financial institutions will be receiving information about the regulation changes and can assist Albertans who are eligible for the new options. Additional information is available through the Alberta Finance website at www.finance.gov.ab.ca/publications/pensions/index.html.

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Revised: This news release was revised on August 25, 2006.

Attachments: Backgrounder and FAQs

Media enquiries may be directed to:
Marie Iwanow
Alberta Finance
Ph: (780) 422-2126

For all other public enquiries:
Employment Pensions, Alberta Finance
(780) 427-8322
email:employment.pensions@gov.ab.ca

• Under terms of the Employment Pension Plans Act and regulations, employees who have participated in a Registered Pension Plan are entitled to pension benefits, even if they leave their employer before retirement. They can choose either to receive a monthly pension from the plan when they retire, or to receive a one-time lump sum representing the full value of their pension, including employer contributions (if they have been with the employer for at least two years).
• Pension money transferred to an employee is "locked-in," meaning it cannot be paid out in cash. Instead, it must be used to provide retirement income and is transferred into a restricted RRSP in the employee's name, called a Locked-In Retirement Account (LIRA), where the money can be invested and earn interest.
• At age 50 or older, a person can begin to receive income from the LIRA by transferring the money into a life annuity or a Life Income Fund (LIF).
• Some pension plans also allow funds to be transferred directly to a life annuity or LIF when a person wants to begin receiving retirement income.
• Because a life annuity or LIF is designed to provide retirement income for the remainder of a person's lifetime, the size of withdrawals from the fund are limited.
• In 2003 and 2005, the Government of Alberta issued discussion papers about pension topics to solicit feedback from industry stakeholders and the general public. With the regulation changes, the government has addressed concerns by locked-in account holders that maximum withdrawals allowed from products such as a LIF were too low, especially for people who retired early and who are not yet receiving benefits from the Canadian Pension Plan or Old-Age Security.
• Prior to the regulation changes, 100 per cent of LIRA funds had to be converted to a life annuity or LIF at retirement.
• Under the new rules, when people age 50 and over transfer funds to a LIF or life annuity, they have a one-time option to "unlock" up to 50 per cent of the locked-in funds. This money can be taken as cash or transferred into a tax sheltered vehicle such as a Registered Retirement Savings Plan (RRSP). Cash payouts are subject to taxation.
• The new rules will also allow the unlocking of 50 per cent of accounts in a defined contribution pension plan that offers members (over age 50) the option of receiving retirement income through a Defined Contribution Retirement Income Account (DC-RIA). The DC-RIA is now permitted as the result of other changes to the Employment Pension Plans Act and regulations. Prior to the rule changes, employees enrolled in a defined contribution pension plan had to transfer their money into a LIRA, LIF or life annuity upon retirement.

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Media enquiries may be directed to:
Marie Iwanow
Director of Communications
Alberta Finance
Ph: (780) 422-2126

For all other public enquiries:
Employment Pensions, Alberta Finance
(780) 427-8322
email:employment.pensions@gov.ab.ca

Q. Who is eligible to take advantage of the new unlocking regulations?
A. You must be 50 years of age or older and be transferring money from a Locked-in Retirement Account or an eligible Registered Pension Plan into a life annuity, Life Income Fund or Defined Contribution Retirement Income Account. Written consent from a pension partner (married or common-law spouse) must also be provided.

Q. What is considered an eligible Registered Pension Plan?
A. The money must have been earned by an employee working in Alberta for an employer other than a federally-regulated employer, which includes any federal government body or the banking, shipping, telecommunications and interprovincial transportation industries.

Q. What happens if I contributed to a pension plan while employed in Alberta but I have now left the province?
A. If you have exited a pension plan in Alberta, you are still eligible to exercise the 50 per cent unlocking option when you want to begin receiving retirement income from the locked-in retirement savings. You must be 50 years of age or older and have written consent from your pension partner.

Q. What is a Locked-in Retirement Account (LIRA)?
A. If you are an employee who is leaving a Registered Pension Plan, you are entitled to a portion of the money held in the plan on your behalf. Vested employees, who have participated in the pension plan for at least two years, are entitled to both the employee and employer contributions, plus interest. You may transfer the pension money into a Locked-in Retirement Account, sometimes known as a locked-in RRSP, to ensure the money is used for its intended purpose of retirement income. As owner of the LIRA, you make decisions about investments, but are not allowed to withdraw income until you reach age 50, when the LIRA can be converted to a life annuity or a Life Income Fund.

Q. What is a life annuity?
A. A life annuity is a contract with a life insurance company in which you pay the life insurance company a set amount of money, and in return, the company agrees to pay you a guaranteed monthly amount of income for as long as you live. The size of the monthly payment cannot be altered after the life annuity is activated.

Q. What is a Life Income Fund (LIF)?
A. A Life Income Fund, which is established through a financial institution such as a bank, is designed to provide retirement income. The amount of income that can be withdrawn from the fund can vary each year. The minimum amount that must be withdrawn is established through the federal Income Tax Act, while the maximum withdrawal is established by Alberta's Employment Pension Plans Act and includes factors such as your age and prevailing interest rates.

Q. What happens if I already have funds deposited in a LIF?
A. Holders of an existing LIF have the option of unlocking up to 50 per cent of the value of the fund, beginning November 1, 2006. The option must be exercised by December 31, 2007.

Q. What happens if I miss the deadline for an existing LIF?
A. If the holder of an existing LIF does not exercise the 50 per cent option by the December 31, 2007 deadline, the entire value of the fund will remained locked for the duration of the fund.

Q. What happens if I already have funds deposited in a life annuity?
A. Holders of an existing life annuity do not have the option of unlocking up to 50 per cent of the fund's value. The guaranteed monthly income established through an annuity contract is based on the fund's full value so it cannot be altered and must remain locked-in.

Q. What can I do with funds once they are unlocked?
A. The money can be transferred to a Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF), or taken as cash. Cash is subject to taxation.

Q. What happens if I really need the money right now and I want to access my locked-in retirement savings prior to age 50?
A. The Financial Hardship Unlocking Program allows access to locked-in funds, prior to age 50, in limited financial situations such as a temporary loss of income or an inability to pay rent. An application is made through the Superintendent of Pensions office.

Q. What is a Locked-In Retirement Income Fund (LRIF)?
A. A Locked-In Retirement Income Fund, similar to a LIF or life annuity, is designed to provide retirement income from money transferred from a LIRA. The maximum withdrawal allowed from the fund can vary each year and is based entirely on investment earnings.

Q. Why are LRIFs being discontinued?
A. Regulation changes have combined all the advantages of an LRIF with a LIF. LIF holders can now make larger withdrawals in years of strong investment returns. As a result, the need for LRIFs has been eliminated.

Q. What happens if I already have established a LRIF?
A. LRIFs are to be transferred to another locked-in product such as a LIF or life annuity by December 31, 2007. Holders of existing LRIFs are also eligible for the 50 per cent unlocking option.

Q. What is a Defined Contribution Retirement Income Account (DC-RIA?)
A. A DC-RIA is very similar to a Life Income Fund, the difference is that a DC-RIA is only available to members of a defined contribution pension plan that offers this option.

Q. What is a Defined Contribution Pension Plan?
A. There are two types of pension plans, a defined benefit pension plan and a defined contribution pension plan. In a defined benefit pension plan, the benefit received by a retired person each month is calculated by a formula based on factors such as years of service with the company and average yearly income. In a defined contribution pension plan, a formula is not used to determine the monthly pension amount. The benefits are based exclusively on the amount of employer and employee contributions to plan, plus interest earned through investment of those contributions.

Q. Why is pension partner consent required before the unlocking option is exercised?
A. By law, pension partners (married or common-law spouse), are entitled to a portion of pension benefits so decisions that impact pension income must have consent from the pension partner. Consent forms are available at the website at http://www.finance.gov.ab.ca/publications/pensions/index.html.

Q. Where can I find out more information?
A. Financial institutions will be receiving information about the regulation changes and can help their eligible clients take advantage of the new unlocking option. Additional information is available on the Alberta Finance website at www.finance.gov.ab.ca/business/pensions.

John Doe has been working for the same company and contributing to its pension plan for 25 years. At age 45, he decides to change jobs. He is entitled to keep his contributions and the contributions made on his behalf by his employer to the company pension plan, which equal $100,000. The funds are transferred to a Locked-in Retirement Account (LIRA) in John Doe's name, where the funds are invested and earn $10,000 in interest over the next 10 years. At age 55, John Doe decides to retire and start receiving income from his locked-in retirement savings. At this point, he has the option of unlocking up to 50 per cent of the $110,000 contained in his Locked-in Retirement Account. He can take up to $55,000 out of the locked-in account as cash or put it into an RRSP or RRIF. The remaining money must be transferred to a Life Income Fund or life annuity.

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