Ontario Locked-In Plans

LIRAs - LRSPs - LIFs - LRIFs

Ontario-Locked-In-Plans In Ontario all locked-in plans are governed in accordance with the provincial legislation called the Pension Benefit Act. There have been a number of changes to allow for more flexibility in locked-in plans. Funds from locked-in plans can be unlocked under certain circumstances.

When unlocking locked-in funds and transferring to RRSPs or RRIFs your pension funds may no longer benefit from creditor protection with certain plan types. In order to maintain potential creditor protection transfer your asset to annuities or segregated funds and designate a beneficiary within a prescribed class. Annuities and segregated funds are not sold by Banks, Trust Companies or Credit Unions they are only available through licensed insurance brokers.

You can use a combination of different provisions to unlock funds form your locked-in plans. For example one may be able to unlock 50% of their plan assets at the time of transfer and after use the small account rule to unlock the remaining locked-in funds in their plan. Each situation is different and has to be assessed on an individual basis.

Once the locked-in funds are unlocked and transferred to an RRSP or a RRIF you can access the funds and make withdrawals. All withdrawals are taxed as income the financial institution will be required to withhold tax. If you are planning to withdraw a large amount take into consideration the tax implications. You can plan your withdrawals over a period of time to minimize income tax payable on the withdrawals. Proper tax planning can save you thousands of dollars in taxes.

Beware of scams, there is no magic bullet the rules set out by the provincial regulators apply to everyone. There have been a number of scams that promise access to locked-in pension funds and get luck rich scheme's that prey on desperate people. If you need to withdraw funds due to financial hardship all forms and information is available free of charge from the Financial Services Commission of Ontario.

Financial Services Commission of Ontario

Changes To The Rules For Ontario Locked-In Accounts - O. Reg. 239/09

On June 19, 2009, O. Reg. 239/09 under the Pension Benefits Act was filed. The Regulation makes numerous important changes to the rules governing locked-in accounts. Locked-in accounts include Locked-In Retirement Accounts (LIRAs), Old Life Income Funds (Old LIFs), New Life Income Funds (New LIFs) and Locked-In Retirement Income Funds (LRIFs). The following points summarize the key changes to the rules, indicate when these changes come into effect, and provide answers to some of the questions that are likely to arise as a result of these changes.

What are the key changes to the rules?

From January 1, 2011 to April 30, 2012, owners of Old LIFs and LRIFs will have a one-time opportunity to withdraw in cash or transfer to an RRSP or RRIF up to 50% of the total market value of the assets of the fund.

From January 1, 2010 to December 31, 2010, owners of New LIFs will have a one-time opportunity to withdraw in cash or transfer to an RRSP or RRIF an additional 25% of the total market value of the assets of the fund that were transferred into their New LIF account on or before December 31, 2009.
After December 31, 2009, anyone who purchases a New LIF will have a one-time opportunity to withdraw in cash or transfer to an RRSP or RRIF up to 50% of the total market value of the assets of the fund.
On or before September 30, 2010, financial institutions are required to give notice of these and other related changes to owners of Old LIFs and LRIFs.
On or before January 1, 2010, financial institutions are required to give notice of these and other related changes to owners of New LIFs.

As of January 1, 2011, all of the rules that govern locked-in retirement accounts (LIRAs) are consolidated into Schedule 3 under the Regulation.

What changes come into effect on January 1, 2010?

New LIF owners can withdraw or transfer an additional 25% of the assets that were transferred into their account on or before December 31, 2009.

Anyone who purchases a New LIF can withdraw or transfer up to 50% of the assets.

What changes come into effect January 1, 2011?

Owners of Old LIFs or LRIFs can apply to withdraw or transfer 50% of the assets in their account.

Owners of New LIFs will no longer be able to withdraw or transfer an additional 25% of the assets that were transferred into their account on or before December 31, 2009.

The rules for determining the maximum annual income payment from an Old LIF or an LRIF will become standardized with the rules under a New LIF: the greater of the investment earnings of the fund in the previous year, or the amount that would be paid using the LIF formula in the regulations.

Owners of Old LIFs and LRIFs will no longer be able to transfer assets from those accounts to a locked-in retirement account (LIRA).

The new Schedule 3 which sets out the LIRA rules comes into effect.

New Rules for Ontario Locked-in Accounts Come Into Effect on January 1, 2011

On January 1, 2011, several new rules for Ontario locked-in accounts will come into effect. These rules were passed in June 2009 under Ontario Regulation 239/09 and will affect old life income funds (Old LIFs), locked-in retirement income funds (LRIFs) and new life income funds (New LIFs). In addition, the rules that apply to locked-in retirement accounts (LIRAs) will be consolidated into one new schedule.

New Rules for LIRAs

The rules for LIRAs will be consolidated in Schedule 3 under Ontario Regulation 909. A number of provisions that are currently found in this regulation will be found in Schedule 3.

New Rules for Old LIFs, New LIFs and LRIFs

The rules for Old LIFs (which are in Schedule 1) and LRIFs (which are in Schedule 2) will be harmonized with the rules for New LIFs (which are in Schedule 1.1.). All three schedules will remain in effect, but the provisions of each will be essentially the same.
The rules for determining the maximum annual income payment from Old LIFs, New LIFs and LRIFs will be identical. The maximum income payment for all three funds will be the greater of the amount calculated under the LIF formula, or the fund’s investment earnings from the previous year.
After December 31, 2010, owners of New LIFs will no longer be able to apply to withdraw an additional 25 per cent of the money that was transferred into their New LIFs prior to January 1, 2010. As a result, FSCO pension Form 5.1.1 cannot be used as of January 1, 2011.
After December 31, 2010, the option to withdraw or transfer up to 50 per cent of the money that was transferred into a New LIF will only apply to transfers from a LIRA or a registered pension plan. This withdrawal or transfer option will no longer apply to money that is transferred from an Old LIF or LRIF, unless the transfer was made in accordance with the terms of an order under the Family Law Act or a domestic contract as defined in Part IV of that Act.
Between January 1, 2011 and April 30, 2012, owners of Old LIFs and LRIFs will be able to make a one-time application to withdraw or transfer up to 50 per cent of the total market value of these funds into a Registered Retirement Savings Plan (RRSP) or a Registered Retirement Income Fund (RRIF). Applications must be made to the financial institution that holds the money. Use the new FSCO pension form, Form 5.3, which will be available in December 2010. This withdrawal or transfer option will no longer apply after April 30, 2012.

FAQs on the Option to Transfer Money from a Locked-in Account to an Unlocked vehicle

This addresses questions relating to the option to transfer money from a locked-in account to an unlocked vehicle.

Q: How have the rules for transfers of locked-in accounts changed?

A: Effective January 1, 2008, owners of locked-in accounts have new transfer options in the following two situations:

If the owner of a locked-in account dies, his/her surviving spouse will be able to transfer the survivor benefit directly to his/her own RRSP or RRIF, where permitted by the federal Income Tax Act. (Under the previous rules, the surviving spouse could only take the benefit in a lump sum.)
If the owner of a locked-in account is older than 55 and has less than 40 per cent of the Year’s Maximum Pensionable Earnings under the Canada Pension Plan ($18,880 in 2010) in all of his/her locked-in accounts, the owner may transfer the entire amount directly to his/her own RRSP or RRIF, rather than receive it in a lump sum. - 07/07

Q: When the owner of a locked-in account dies, is her/her surviving spouse required to take the full value of the survivor benefit in cash, or transfer it to an RRSP or RRIF? Is the surviving spouse allowed to take part of the survivor benefit in cash and transfer part of it to an RRSP or RRIF?

A: When the survivor benefit is paid, the surviving spouse is required to fully withdraw or transfer the entire amount of the locked-in account into his/her own RRSP or RRIF. The surviving spouse cannot withdraw part of the survivor benefit in cash and transfer the remaining amount to an RRSP or RRIF.

Q: Is the survivor benefit required to go to the surviving spouse, or can it go to a named beneficiary?

A: The survivor benefit must be paid to the owner’s spouse. It can only be paid to the owner’s named beneficiary in the following three situations:

if the spouse waived his/her entitlement to a survivor benefit;
if the owner of the locked-in account and his/her spouse were living separate and apart on the date of the owner’s death due to a breakdown in their relationship; or
If the owner of the locked-in account had no spouse when he/she died.

If there is no named beneficiary, then the survivor benefit would be paid to the owner’s estate. - 05/10

Q: Can I transfer 50 per cent of the funds from my New LIF to a spousal RRSP or a spousal RRIF?

A: Ontario’s pension laws allow owners of New LIFs to transfer up to 50 per cent of the funds to any RRSP or RRIF. The law does not prohibit you to transfer that money to a spousal RRSP or a spousal RRIF. However, there may be restrictions under the federal Income Tax Act for such a transfer. Questions about the tax impact of this type of transfer should be directed to the Canada Revenue Agency’s Individual Income Tax Inquiry Line at 1-800-959-8281. - 05/10

FAQs on Unlocking a Locked-in Account if you are a Non-Resident of Canada

This provides frequently asked questions on the unlocking of a locked in account for a non-resident of Canada.

Q: How do the locked-in account rule changes impact non-residents of Canada?

A: Effective January 1, 2008, a locked-in account owner who is a non-resident of Canada — as determined by the Canada Revenue Agency for the purposes of the federal Income Tax Act — may apply to unlock and withdraw all the money in his/her locked-in account two years after departing Canada. - 05/10

Q: I am a non-resident of Canada. How do I apply to unlock the money in my locked-in account(s)?

A: If you satisfy the Canada Revenue Agency’s (CRA) requirements for being a non-resident of Canada, you need to complete and sign FSCO pension Form 5. You then need to submit the form to the financial institution that holds the locked-in account(s) and ensure that it is accompanied by the following:

A written determination from the CRA that states you are a non-resident of Canada for the purposes of the Income Tax Act.
Written consent from your spouse or a certification that you do not have a spouse.

If you are interested in finding out if you qualify, you can find more information on the CRA’s website. Make sure you take a look at the criteria that the CRA uses for determining if a person is a non-resident of Canada. Read NR73-Determination of Residency Status (Leaving Canada) and Residency Status. - 07/07

Q: I understand that as a non-resident of Canada I can apply to unlock and withdraw all of the money in my locked-in account after living abroad for two years. Can I make this application at any age? If I already used the money in the locked-in account to purchase an annuity can I still apply?

A: If you satisfy the Canada Revenue Agency’s (CRA) requirements for being a non-resident of Canada, you can unlock and withdraw money from your locked-in account(s) at any age. These rules only apply to money that is held in an Ontario locked-in account when you submit FSCO pension Form 5. If you already purchased an annuity with money that was previously in your locked-in account, you will not be able to apply to take money out of your annuity. - 05/10

Applying for Financial Hardship Withdrawal

Last updated: June 2013

Individuals who qualify under specific circumstances of financial hardship may apply to the Financial Services Commission of Ontario (FSCO) for special access to the money in their Locked-in Retirement Accounts, Life Income Funds, or Locked-in Retirement Income Funds. There are six qualifying circumstances for making an application to FSCO to withdraw money from your locked-in account based on financial hardship:

Low income

If you apply in this category, your expected total personal income before taxes for the next 12 months must be less than $34,067 in the year 2013. This amount changes every year.
Risk of eviction from your home

You (or your spouse) must have received a written demand from the creditor for money owed on a debt secured against your residence—for example, a mortgage, property lien, or property taxes. You must need money to avoid the risk of eviction.
Risk of eviction from your rented residence

You (or your spouse) must have received a written demand for the payment of rent owed, and need money to avoid the risk of eviction.
You need money in order to pay the first and last months' rental deposits on a residence you wish to rent.
You need money to pay for medical treatment for you, your spouse or any dependants of either of you.

The medical expenses you claim cannot be covered by a provincial health plan, your private health insurance, or any other source. You may claim for expenses already paid or for expenses you will incur in the future. You must provide a doctor's letter stating that the medical treatment is necessary.
You need money for residential renovations, alterations or construction to accommodate the use of a wheelchair, or other needs related to a disability or illness.

The illness or disability must affect you, your spouse or a dependant of either of you. The renovations or alterations can be made to your home or the dependant's home. The money can also be applied to the cost of including features to accommodate an illness or disability in the construction of a new home. You must provide a doctor's letter stating the renovations, alterations or construction are necessary to deal with an illness or disability.

If you are making an application based on financial hardship, you may be expected to use some of your assets to deal with the hardship. If you own eligible assets, the regulations require that their value be deducted from the amount of money that you are applying to withdraw from a LIRA, LIF, or LRIF. Once this has been done, the regulations also require that you qualify to withdraw at least $500 to deal with your financial hardship. FSCO cannot approve your application if you only qualify to withdraw less than $500. The same rules apply to any assets owned by your spouse. If you are making an application to help a financial dependant of either or both of you, the rules apply to the dependant's assets as well.

However, many types of assets are exempt from this requirement and do not need to be used to deal with the hardship. These include:

your principal residence
a personally-operated business or farm (to a limit of $50,000)
motor vehicles
essential tools of trade necessary to employment
personal items such as clothing and jewelry

As announced in the 2009 Ontario Budget, the Financial Hardship Unlocking Fees have been waived.

Important points to remember:

The creditor protection provisions of the Pension Benefits Act no longer apply to any money withdrawn from an Ontario locked-in account and the money may be seized by your creditors.
Money withdrawn from an Ontario locked-in account is subject to income tax, which may be withheld at the time the withdrawal is made.
Before you make an application in Ontario for special access to money in your LIRA, LIF or LRIF, it's important to verify that your locked-in account is subject to Ontario law, rather than federal legislation or the law of another province or territory. If you worked for a federally regulated industry such as banking, telephone, television or airline transportation, for example, your locked-in account may be subject to federal law. If you're not sure, check with the bank, insurance company or other institution that administers your account. If their records indicate that your account is not subject to Ontario law, the financial institution cannot release any money from your locked-in account based on financial hardship.
Where your spouse's consent is required, you must include their signed consent on your application to withdraw money from an Ontario locked-in account because of financial hardship. The spouse's signature must be obtained on a date not more than 60 days before the date your financial institution receives your completed application.
Your completed, signed and dated application must be received by FSCO within 60 days of the date it is signed.
You may only apply for special access to one locked-in account at a time.
Withdrawing money from your locked-in account may affect your eligibility for certain government benefits, such as social assistance.

To obtain an application form and further information by telephone or mail, contact:

Financial Services Commission of Ontario

Financial Hardship Unlocking Section

5160 Yonge Street

Suite 1600

Toronto ON M2N 6L9

General inquiry: (416) 250-7250

FAX: (416) 226-7880

Toll free in Ontario: 1-800-668-0128

TTY toll free in Ontario: 1-800-387-0584

June 24, 2013 11:45 a.m.Ministry of Finance

News Release

Making It Easier to Withdraw Locked-in Retirement Funds

Ontario Government Simplifying Financial Hardship Unlocking Process

Ontario is making it easier for people who need to access their locked-in retirement funds by restructuring its financial hardship unlocking program.

Beginning January 1, 2014, individuals can apply directly to their financial institution for financial hardship withdrawals, rather than to the Superintendent of Financial Services.

As well, the government is reducing the amount of evidence required to authorize a withdrawal, and the asset test that determines how much can be unlocked from an account will be replaced with a maximum withdrawal limit.

Providing the people of Ontario with easier access to these funds in times of financial hardship is part of the government's plan to support a fair society and help people in their everyday lives.

Quick Facts

Locked-in funds are amounts transferred from an Ontario registered pension plan into an Ontario locked-in account (Locked-In Retirement Accounts, Life Income Funds and Locked-In Retirement Income Funds) where they are held to provide income in retirement.

The restructuring of the financial hardship unlocking program was a commitment in the 2012 Budget.

The seven criteria under which an applicant can apply for financial hardship unlocking will be consolidated into four: rental or mortgage arrears, medical expenses, payment of first and last month’s rent and low income.

An individual will not be able to make more than one application under each of the four financial hardship criteria per year.

Source: Financial Services Commission of Ontario

The information provided on this web site is intended for general information only. It should not be construed as legal, accounting, tax or specific insurance and investment advice. Clients should consult a professional advisor concerning their situations and any specific insurance and investment matters. While reasonable steps have been taken to ensure that this information was accurate as of the date hereof, Stone-Hedge Financial Group Inc. and its affiliates make no representation or warranty as to the accuracy of this information and assume no responsibility for reliance upon it.

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