To Clients: New options for your locked-in accounts

By Staff | May 9, 2008 | Last updated on May 9, 2008
3 min read

(May 2008) Clients have new, legitimate options at their disposal for unlocking locked-in retirement accounts, after the federal government released amendments to the Pension Benefits Standards Regulations, making good on promises made in this year’s federal budget.

The amendments announced are designed to give consumers the ability to reposition their retirement assets and withdraw from these funds in special circumstances. For more information about the department of finance announcement, please click here to read Feds unveil new locked-in account options.

Please note: These changes apply to locked-in assets from federally-regulated pension plans. According to Office of the Office of the Superintendent of Financial Institutions Canada, federally-regulated plans include pension plans for some federal Crown corporations, banks, companies involved in interprovincial and/or international transportation and communications companies, among others.

For other pension plans, the locked-in rules outlined by individual provinces will likely apply. Although provinces may decide to follow suit and amend their legislation accordingly, such changes are not automatic or guaranteed. Please check with your experts, and with the companies managing your client’s locked-in assets, before engaging in strategies to access these funds.

Get in touch with your clients and let them know about the changes. To help, we’ve created this customizable template letter.

Dear [Client’s name],

Do you have a locked-in Registered Retirement Savings Plan? Most people open locked-in accounts when leaving an employer-sponsored pension plan with accrued benefits.

Because the withdrawal rules are so stringent, many times the assets are put away and forgotten about. Three new measures introduced recently, though, give you more flexibility and more options for repositioning your retirement assets and making use of this money under certain circumstances.

If you’re 55 years of age or older, for example, you can legitimately unlock up to 50% of your locked-in assets, or convert them to another tax-sheltered registered account, with no withdrawal limits. There are also new provisions available for small, locked-in account balances, if you have significant medical expenses or if your annual income is likely to be very low in any given year.

There are three new options available for federally-regulated locked-in plans established after May 8, 2008:

One-time, 50% unlocking Once you turn 55, you may transfer your locked-in assets to a new Restricted Life Income Fund (RLIF) account and then transfer up to 50% of the balance to any registered account within 60 days of the RLIF creation. After 60 days, the account is subject to existing withdrawal rules.

Small balance unlocking If you’re 55 years of age or older and your locked-in account assets are less than 50% of yearly maximum pensionable earnings (YMPE) — $22,450 in 2008 — you may wind up your Life Income Funds (LIFs), RLIFs or the new Restricted Locked-in Savings Plans (RLSPs), and withdraw the cash, or convert them to an unlocked tax-deferred savings vehicle.

Financial hardship unlocking Finally, under the new rules, anyone, regardless of age, may withdraw cash, up to 50% of YMPE, from any combination of locked-in accounts (all withdrawals need to be made within 30 days), if they meet one or both of the following conditions:

Medical or disability Those who expect to spend more than 20% of their income in any given calendar year for medical treatment, assistive technology or other expenses related to disability can make use of the provision if a licensed Canadian physician certifies that the treatment or technology is needed.

Low income Those with low income, i.e. anyone who expects to earn less than 75% of YMPE — $33,675 in 2008 — will be allowed to withdraw an annual amount based on their expected income, to a maximum of 50% of YMPE. Total permitted withdrawals, regardless of reason, may not exceed this 50% limit.

Under the older set of rules, these accounts can also be unlocked if your life expectancy is reduced or if you plan to leave Canada permanently.

This letter is a greatly-simplified overview of the rules. There are also consequences to consider if you are thinking about unlocking your pension assets — any assets withdrawn from tax-deferred savings accounts may be taxable, and funds unlocked in this manner lose their creditor-protected status.

If you would like more information about locked-in accounts in general, or the new rules specifically, or if any of the above circumstances apply to you, please don’t hesitate to call my office and let me know.

As always, if there are significant life changes affecting your situation, there are planning measures we can discuss and put in place, hopefully to make things better and keep your financial plans on track.


[Your name]

[Your signature]

Filed by Kate McCaffery,

(05/09/08) staff


The staff of have been covering news for financial advisors since 1998.