Transfers to RRSPs from funds originating in registered pension plans normally must go to a special, separate “locked-in” RRSP, or LIRA. Examples include transfers on employment termination, death, retirement or plan termination.
The locking-in aspect may restrict your freedom of access to the funds, which doesn’t occur with a regular RRSP created with your own direct contributions.
In general, the locking-in restrictions prohibit your access to the funds except under the terms that would have prevailed, had you remained with the registered plan. Typically, this means you cannot access the funds until at least age 55. If you wish, at that time (or any time before December 31st of your 69th year), the funds can be transferred to a Life Income Fund (LIF), a life annuity or a locked-in Retirement Income Fund (LRIF). Specific rules may vary province by province. Stipulated minimum withdrawals must then be made annually. Withdrawals are also subject to annual maximums.
Your new locked-in RRSP can be held at any financial institution you choose and you do gain complete control over the investment aspects of those pension funds.
Locked-in pension plans regulated under BC legislation can be released under limited circumstances if (a) the balance in a ‘locked-in’ RRSP or LIF falls below prescribed limits, (b) life expectancy is shortened, or (c) the owner becomes a non-resident of Canada. The prescribed limits are related to the Yearly Maximum Pensionable Earnings (YMPE). A person 65 or older can release all ‘locked-in’ funds if the total value of all such plans is less than 40% of the YMPE (thus, $19,320 for 2011); for those under 65, funds can be released if the value of the particular plan is under 20% of the YMPE (thus, $9,660 for 2011). BC law does not allow for the release of ‘locked-in’ funds for reasons of financial hardship.
There are different relieving provisions if the plan is regulated federally. The rules for these include an allowance for the release of funds if individuals 55 or over have LIF holdings of up to 50% of the YMPE (thus, $24,150 for 2011). Individuals 55 or older will be entitled to a one-time conversion of up to 50% of LIF holdings into a tax-deferred savings vehicle with no maximum withdrawal limits. Also, all individuals facing financial hardship (low income, high disability/medical-related costs) will be able to unlock up to 50% of the YMPE per year.