I am presently experiencing financial difficulties. I would like to have access to my pension funds but I have been told that the funds are locked in. How can I access my funds?
The Pension Benefits Standards Act, 1985 (PBSA) does NOT allow access to locked-in funds due to financial difficulties at any time. If your pension funds were transferred to a locked-in RRSP when you terminated employment, then it is possible to purchase an immediate life annuity or a Life Income Fund (LIF) at any time with the funds in your locked-in RRSP.
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Are there any conditions under which unlocking of pension funds is allowed?
There are certain exceptions to the locking-in rule.
- If your plan permits, pension money may be unlocked
- if the amount of the annual pension that would be payable to you at pensionable age is less than 4% of the Year’s Maximum Pensionable Earnings (YMPE) in the year that your employment ceases – PBSA 1985, subsection 18(2)(c); or
- if you have a shortened life expectancy (as certified by a physician) – PBSA 1985, subsection 18(2)(b) and PBSR 1985, subsections 2(2), 20(4) and 20.1(3).
- If you cease to be a resident of Canada for at least two consecutive calendar years and have ceased employment with the employer, the pension benefits or pension benefit credits are exempt from the locking-in provisions of the PBSA. A person is considered a resident of Canada throughout a calendar year if he or she has stayed in Canada in the year for 183 days or more – PBSR 1985, subsection 28.4.
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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 cease membership in the plan, the PBSA requires as a minimum that your pension money be 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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Can I use my locked-in registered retirement savings plan (RRSP) as collateral for a loan?
No. The Pension Benefits Standards Act, 1985 (PBSA) 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.
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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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Can a creditor force me to use my federal locked-in RRSP to pay off my debts?
No. However, if you choose to convert your funds to a Life Income Fund (LIF), or to purchase an immediate life annuity, the monthly or annual payments could be seized by a creditor.
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Can social services/welfare force me to convert my federal locked-in RRSP to a LIF and use my annual payment to reduce my social assistance payments?
No.
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Can I unlock small amounts when I leave my pension plan?
Your pension plan may provide for the unlocking of small amounts as an optional provision. Check with your plan sponsor when you are terminating from 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 cease to be a member, your plan may provide for the pension benefit credit to be paid out.
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Can I unlock small amounts from my RRSP?
No. The regulations governing RRSPs currently do not provide for the unlocking of small amounts from RRSPs.
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I am no longer a resident of Canada. Can the funds in my RRSP or my LIF be unlocked?
Section 28.4 of the Pension Benefits Standards Regulations, 1985 exempts pension benefits and pension benefit credits from the locking-in provisions of the PBSA. Existing locked-in RRSPs or Life Income Funds (LIF) can be unlocked as long as you have ceased to be a resident of Canada for at least two calendar years.
PBSA Update No.26, September 2006 provides further information on this.
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