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The key to Locked-in Retirement Accounts

A Locked-in Retirement Account (LIRA), also referred to as a Locked-in RRSP, allows you to continue growing your pension plan savings after a change in your employment or marital status. It holds locked-in pension funds for a former plan member, an ex-spouse or a surviving spouse. Here’s what you need to know regarding your pension savings, and how a LIRA can help.

What is a pension?

For Canadians, there are three primary sources of income after retirement:

  • Personal savings in Registered Retirement Savings Plans (RRSPs), which are transferred into accounts or annuities that pay out a retirement income, based on your needs.
  • Government benefits, including the Canada Pension Plan (CPP) – or the Quebec Pension Plan, in Quebec – and Old Age Security (OAS), which provide retirement income according to factors like how long you’ve worked and lived in Canada.
  • Employer pension plans (EPPs), which typically include contributions from both you and your employer. These assets are invested and converted to income once you retire or reach a certain age.

Most employer-sponsored pension plans are registered, which means they are subject to government regulations and tax rules. When you accumulate pension funds as a group plan member, you cannot take money out until you are a certain age and stop working.

If you leave your employer before retirement, a locked-in account will hold your accumulated pension funds. While you’ll be restricted from making further contributions to this account, you can purchase investments – like mutual funds, segregated funds, stocks and bonds – that help you grow these savings.

When would you open a LIRA?

You may be able to open a LIRA (with a financial-services provider) if, prior to retirement, you:

  • Change employers and leave a sponsored group pension plan.
  • Split with your spouse and receive a portion of their pension assets in your settlement.
  • Receive a spouse’s pension or LIRA as a beneficiary.

In each of these circumstances, a LIRA allows you to invest the transferred pension assets and manage growth on your own terms. But, as the name suggests, funds in a LIRA are “locked in,” so you can’t take money out until retirement – unless you qualify for an unlocking provision, according to your pension jurisdiction.

Defined benefit vs defined contribution plan

Your options when opening a LIRA depend on the type of employer plan you’re transferring. The most common plan types are:

  • defined benefit pension plan, which guarantees you a percentage of your salary, yearly for life, when you retire. The amount you receive depends on how long you worked and is not influenced by market fluctuations.
  • defined contribution pension plan, where your employer agrees to contribute a specific amount. This does not guarantee you a defined income upon retirement. Your account’s value is subject to how the invested money performs.

Defined contribution plans can be moved to a LIRA without many restrictions. But, if you leave an employer with a defined benefit plan, you’d have to take the “cash out” option (also called commuting the pension) if you want to transfer it to a LIRA. In this case, you can transfer a specific maximum to a LIRA and take the remaining funds as taxable cash. While you lose the defined yearly retirement income from the plan, you gain the opportunity to grow the funds through investments inside your LIRA.

How do LIRAs compare?

LIRAs are like RRSPs for your pension funds. Both accounts offer tax-deferred growth, meaning that your money is not subject to tax until you withdraw it in retirement (presumably, at a lower tax rate than when you were working). You can also take advantage of similar investment options.

So, what’s different? Locked-in accounts are designed solely for pension funds, which make them inherently less flexible than RRSPs. The following table provides an at-a-glance comparison:

Contributions You can contribute up to your yearly limit, until the end of the year you turn 71. Once you make the initial transfer from a pension plan, you can’t make additional contributions, however funds from other pensions can be added.
Income withdrawals You can withdraw any amount of money as income before retirement. Keep in mind that you will pay tax on any funds you take out of your RRSP. Typically, you can’t make withdrawals until you transfer the funds to a LIF, LRIF or annuity in retirement. This could be sooner, if you qualify for an unlocking provision you would be taxed similar to RRSP withdrawals
Exceptions You can make taxfree withdrawals if you put the money toward your first home or continuing education.

Exceptional circumstances allow you to unlock the funds. These include eviction, reduced life expectancy, permanent departure from Canada, high medical costs, among others.

In some provinces, you can unlock 50% of your account balance when you turn 55, subject to restrictions and taxes.


Accounts are regulated federally through the Canada Revenue Agency (CRA). Rules are standard across Canada.

Accounts are regulated provincially to align with corresponding pension plan laws. Rules vary from province to province.

What happens to your LIRA when you retire?

Just as you transfer RRSP funds to a Registered Retirement Income Fund (RRIF), LIRAs have a similar income-generating counterpart – the Life Income Fund (LIF) – that pays out a regular retirement income.

Along with funds from LIRAs, LIFs can hold money that comes directly from your defined contribution or defined benefit pension plan when you retire. Like RRIFs, LIFs offer tax-deferred growth, can hold a variety of investment vehicles, and require a minimum annual withdrawal. For both accounts, all income withdrawals are subject to tax. There are, however, two main differences between a RRIF and a LIF:

  1. LIFs have annual maximum withdrawal limits.
  2. In some provinces, LIFs must be converted into an annuity by December 31 of the year you turn 80.

Yearly maximum withdrawals for LIFs vary by jurisdiction. The yearly minimum limits are defined by your age, as follows:

RRIF withdrawal rates 2022

Age Minimum Withdrawal
50 2.50%
51 2.56%
52 2.63%
53 2.70%
54 2.78%
55 2.86%
56 2.94%
57 3.03%
58 3.13%
59 3.23%
60 3.33%
61 3.45%
62 3.57%
63 3.70%
64 3.85%
65 4.00%
66 4.17%
67 4.35%
68 4.55%
69 4.76%
70 5.00%
71 5.28%
72 5.40%
73 5.53%
74 5.67%
75 5.82%
76 5.98%
77 6.17%
77 6.36%
79 6.58%
80 6.82%
81 7.08%
82 7.38%
83 7.71%
84 8.08%
85 8.51%
86 8.99%
87 9.55%
88 10.21%
89 10.99%
90 11.92%
91 13.06%
92 14.49%
93 16.34%
94 18.79%
95 and above 20.00%

Annual maximums make LIFs more restrictive than RRIFs. Therefore, when withdrawing an annual retirement income from these two sources, it may be beneficial to draw more from your LIF before your RRIF. This can improve your financial flexibility over time by exhausting the more restrictive account first.

Other options for your LIRA in retirement

A LIF isn’t the only way to draw a retirement income from your LIRA. You can also convert your LIRA to:

  • A life annuity, which pays you a guaranteed income for life.
  • Alternative retirement accounts, such as an LRIF, PRRIF or RLIF, which vary by province and may bring fewer restrictions than a LIF.

Now that you’ve locked down the locked-in basics, ready to transfer a pension fund to a LIRA or a LIF?

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The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete and it should not be considered personal taxation advice. We are not tax advisors and we recommend that clients seek independent advice from a professional tax advisor on tax related matters. Mutual funds are offered through Co-operators Financial Investment Services Inc. to Canadian residents except those in Quebec and the territories. Segregated funds and annuities are administered by Co-operators Life Insurance Company. Co-operators Life Insurance Company and Co-operators Financial Investment Services Inc. are committed to protecting the privacy, confidentiality, accuracy and security of the personal information that we collect, use, retain and disclose in the course of conducting our business. Please refer to our privacy policy for more information.

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