Superintendent of Pensions – Interpretive Guideline #17
1
Interpretive Guideline #17
Issued: June 2016
Locked-In Retirement Accounts (LIRAs)
This guideline is designed to explain the characteristics and requirements of Locked-in
Retirement Accounts (LIRAs) as required by the provisions of the
Employment Pension Plans
Act
(Act) and the
Employment Pension Plans Regulation
(Regulation). This guideline
summarizes the legislative requirements that apply to the subject matter, and includes (as
applicable) additional details to outline the Superintendent of Pensions (the Superintendent)
expectations and requirements where such authority has been provided by the Act and
Regulation. Finally, the guideline outlines best practices and policies that the Superintendent
expects from provincially regulated pension plans.
The Act and Regulation should be used to determine specific legislative requirements. Any
legal authority of this Guideline rests in the areas in which the legislation delegates authority to
the Superintendent to accept a proposal or action.
What is a LIRA
A LIRA is a Registered Retirement Savings Plan (RRSP) that, as part of
the RRSP contract, has a prescribed addendum attached to it that
prevents the ability to unlock or receive a cash lump sum and thereby
makes the RRSP eligible to hold funds transferred from a Registered
Pension Plan (RPP).
To be a LIRA, the financial institution issuing the RRSP must be an
Authorized Issuer and the RRSP contract must have attached to it a
copy of the addendum prescribed in Schedule 1 of the Regulation with
respect to LIRAs (
Form 24
). The LIRA addendum must form part of the
contract between the owner and the financial institution and the terms
of the addendum take precedence over any other provision in the LIRA
contract where there is a conflict. A copy of the entire contract,
including the addendum, must be provided to the LIRA owner when a
LIRA is established.
No other type of RRSP may hold RPP funds and no funds other than
those transferred from an RPP may be held in a LIRA.
The purpose of a LIRA is to enable a pension plan member to, if the
member so chooses, transfer their benefit entitlement out of the RPP
when the member terminates membership in the plan, while
maintaining the same rights and protections for the member and the
member’s pension partner that existed while the funds were in the RPP.
LIRA funds must be used to provide retirement income for the LIRA
owner and their pension partner when the owner retires. With a few
exceptions, there is no other way to access funds in a LIRA.
Sections 106 through 122 of the Regulation outline the process for a
financial institution to establish a LIRA, the conditions that the LIRA
contract must meet, and the process for transferring funds to and from
a LIRA. Schedule 1 (
Form 24
) of the Regulation provides the
prescribed addendum that must be attached to an RRSP to qualify it as
a LIRA.
Superintendent of Pensions – Interpretive Guideline #17
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Definitions
Authorized Issuer: An Authorized Issuer is a financial institution whose
name appears on the
Superintendent’s List of Financial Institutions
(Superintendent’s List) with respect to LIRAs.
Locking-In: Means that the funds in the LIRA must be used to provide
lifetime retirement income to the owner, beginning no earlier than age
50, through the transfer of the LIRA funds to one or more of:
a) a Life Income Fund (LIF) with an authorized issuer;
b) a Life Income Type Benefit Account (LITB) within a pension plan;
or
c) a non-commutable life annuity with an insurance company
authorized to issue annuity contracts in Canada.
Life Income Type Benefit Account (LITB): An account similar to a LIF
that may be offered by a defined contribution pension plan, to and from
which locked-in funds may be transferred. (See
Interpretive Guideline
#2
for more information on LITBs).
Member Owner: A former pension plan member who has transferred
their pension entitlement from the pension plan to the LIRA either from
a pension plan or from another LIRA.
Owner: A Member Owner or a Pension Partner Owner.
Pension Partner: With respect to a Member Owner, is a person who is:
a)
married to the Member Owner, and has not been living separate
and apart from that Member Owner for a continuous period longer
than three years; or
b)
if clause (a) does not apply, has been living with the Member Owner
in a marriage-like relationship:
i)
for a continuous period of at least three years preceding the
date; or
ii)
of some permanence, if there is a child of the relationship by
birth or adoption.
Pension Partner Owner: A Pension Partner who acquired the
LIRA as a result of the pension plan member’s death, whether that
death occurred before or after the member transferred their funds
out of the pension plan or who acquired the LIRA as a result of a
matrimonial property settlement.
Waiver: The Pension Partner of a Member Owner may waive (give up)
some or all of their entitlements provided by the LIRA contract. To do
this a prescribed waiver form related to the type of entitlement to be
waived must be signed and filed with the authorized issuer. These
prescribed forms are found in Schedule 6 of the Regulation.
Superintendent of Pensions – Interpretive Guideline #17
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Establishment and
Maintenance of the
LIRA contract by a
Financial Institution
Only financial institutions whose names appear on the Superintendent’s
List with respect to LIRAs are permitted to issue LIRAs. These financial
institutions are referred to as authorized issuers in the legislation.
To be acknowledged and placed on the list, a financial institution must
file with the Superintendent’s office a completed application and
certification form (
Form 22
) signed by an authorized representative of
the financial institution. As part of that certification the financial
institution agrees to attach the prescribed LIRA addendum (
Form 24
) to
each LIRA contract and to provide a copy of the full contract, including
the LIRA addendum to each LIRA owner.
When changes are made to the addendum through amendment to the
Regulation, as happened on September 1, 2014, the financial institution
on the Superintendent’s List must ensure that the new addendum is
used for all future establishments of LIRAs and that owners of existing
LIRAs are provided copies of the new addendum for their records.
An authorized issuer may be removed from the Superintendent’s List if
that issuer fails to administer a LIRA in the manner required by the Act
and Regulation. When this occurs, existing LIRAs may remain with the
issuer but no new LIRAs may be issued.
Duties of the Authorized Issuer
An Authorized Issuer must ensure that:
a) the LIRA is administered in accordance with the Act and
Regulation;
b) the LIRA is and continues to be registered under the Income
Tax Act (Canada);
c) funds in the LIRA are invested in a manner that complies with
the rules of the Income Tax Act (Canada) for the investment of
RRSP money;
d) funds are not paid or transferred from the LIRA other than in
accordance with section 71 of the Act and sections 117 to 121
of the Regulation;
e) any funds transferred out of the LIRA are, subject to section 71
of the Act and section 117 of the Regulation, transferred to:
o
a pension plan that permits such a transfer;
o
another LIRA;
o
a LIF; or
o
an insurance company authorized to issue annuity
contracts in Canada to purchase a life annuity;
f) any statement referred to in section 89(1)(b) (pre-retirement
death benefit waiver) of the Act signed by the pension partner of
a member owner forms part of the contract; and
g) a copy of the LIRA contract, including the required addendum is
provided to the owner at the time the contract is established.
Superintendent of Pensions – Interpretive Guideline #17
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Transfer of Funds to
or From a LIRA
Funds may be transferred to a LIRA from:
•
an RPP (other than from an LITB account of that RPP); or
•
another LIRA.
Note: Funds may not be transferred from a LIF to a LIRA.
Funds may be transferred from a LIRA to:
•
an RPP (if that plan so permits);
•
another LIRA (same or different financial institution);
•
a LIF; or
•
an insurance company authorized to issue annuity contracts in
Canada to purchase a life annuity.
Duties of the Transferor (Sending) Pension Plan Administrator or
Authorized Issuer
1. Transferring funds to a LIRA or to an RPP other than to provide an
LITB.
A pension plan administrator or authorized issuer must, before
transferring funds to a LIRA or an RPP:
•
ensure that the transferee (receiving) financial institution is
an authorized issuer on the Superintendent’s List or that
the RPP is in fact registered and permits the transfer; and
•
ensure that any applicable waivers are transferred to the
authorized issuer or new RPP
2. Transferring funds to a LIF, a life annuity or an LITB account in an
RPP.
A pension plan administrator or an authorized issuer must, before
transferring funds to a LIF, a life annuity or an LITB account in a
RPP:
•
ensure that the LIRA owner or plan member is at least age
50 for a transfer to a LIF or an LITB account;
•
ensure that:
o
in the case of a LIF, the transferee financial
institution is an authorized issuer;
o
in the case of a life annuity, the financial institution is
an insurance company authorized to issue annuity
contracts in Canada and the annuity does not
commence payments until the owner is at least age
50; and
o
in the case of an LITB account, that the fund can
accept the transfer;
•
if funds are being transferred to purchase anything other
than a 60 per cent joint and survivor life annuity ensure that:
o
the owner does not have a pension partner as of the
date of transfer; or
o
the owner’s pension partner has signed the
appropriate waiver form;
•
if funds are being transferred to purchase a life annuity:
o
there is no differentiation amongst the annuitants on
the basis of gender; and
Superintendent of Pensions – Interpretive Guideline #17
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o
annuity payments must commence on or before the
last date on which a person is allowed under the
Income Tax Act (Canada) to start receiving a pension
from an RPP (December 31 of the year that they turn
age 71);
•
ensure that the owner has been advised of the entitlement to
unlock up to 50 per cent of the value of the LIRA (except
when funds are transferred to purchase an annuity) before
transferring the funds to a LIF or LITB, and if the owner
chooses to do so, that the appropriate waiver has been
signed if the owner has a pension partner at the time of
transfer and the amount requested to be unlocked is either
transferred to an RRSP or paid as cash less withholding tax
and any fees charged; and
•
provide the receiving pension plan administrator, authorized
issuer or insurance company with certified copies of any
signed waivers related to the transfer.
Duties of the Transferee (Receiving) Pension Plan Administrator,
Authorized Issuer, or Annuity Issuer
1. Transferring funds from a LIRA or an RPP other than to provide an
LITB.
A transferee pension plan administrator or authorized issuer
receiving funds from a LIRA or an RPP must not accept funds into
the LIRA unless:
•
the financial institution is an authorized issuer on the
Superintendent’s List with respect to LIRAs;
•
the RPP to which funds are to be transferred permits such
a transfer and has a provision to continue to administer the
funds as locked-in pension funds; and
•
the money is being transferred from an RPP or a LIRA.
Where a copy of a signed pension partner waiver has been
provided by the transferring authorized issuer or pension plan
administrator, the transferee must attach that waiver to its LIRA
contract or the member’s pension plan file.
2. Transferring funds to provide a LIF, a life annuity or an LITB
account in a pension plan.
A transferee pension plan administrator, authorized issuer or
insurance company issuing a life annuity receiving funds from a
LIRA or an RPP must not accept funds unless they:
•
ensure that the transferor is an authorized issuer on the
Superintendent’s List with respect to LIRAs or LIFs or is an
RPP administrator; and
•
have received certified copies of any relevant waivers.
Superintendent of Pensions – Interpretive Guideline #17
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Exceptions to
Locking-in
Act 71
There are five circumstances under which some or all of the funds held
in a LIRA may be unlocked. If the amount is taken as cash, there will be
tax and any fees deducted and the gross amount withdrawn is
considered taxable income for that calendar year.
1. Small Amounts Unlocking
Funds in a LIRA may be unlocked if the total amount in the LIRA is
less than 20 per cent of the Year’s Maximum Pensionable Earnings
(YMPE). If the owner is age 65 or older, the threshold is 40 per cent
of the YMPE.
No waiver is required for this unlocking.
Please note that it is specifically prohibited to split a LIRA into
multiple LIRAs leaving any of the LIRA balances in some or all of
those LIRAs to drop below the YMPE limit.
Where the funds in a LIRA are below 20 per cent of the YMPE, the
owner may move the funds to an RRSP or receive the funds as a
cash lump sum less withholding tax and any fees charged.
2. Shortened Life Expectancy
Funds in a LIRA may be unlocked if the owner has an illness or
disability that is certified by a medical practitioner to be terminal or
to likely shorten the owner’s life considerably.
If the owner has a pension partner when applying to unlock funds,
then the pension partner must first sign and file with the authorized
issuer a waiver (
Waiver Form 13
) agreeing to the unlocking.
Should the owner unlock only a portion of the funds, a new waiver is
required if further withdrawals are requested.
3. Non-residency
If the owner of the LIRA provides to the authorized issuer written
evidence that the Canada Revenue Agency has confirmed the
status of the owner to be a non-resident of Canada for purposes of
the Income Tax Act (Canada), then the owner may withdraw, in
cash less withholding tax and any fees charged, the funds held in
the LIRA.
If the owner has a pension partner when applying to unlock funds,
then the pension partner must first sign and file with the authorized
issuer a waiver (
Waiver Form 13
) agreeing to the unlocking.
4. 50 per cent Unlocking
When an owner is age 50 or older and decides to transfer funds in
the LIRA to a LIF or LITB account, the owner may elect to unlock up
to 50 per cent of the LIRA balance prior to transferring the funds into
the retirement income arrangement.
The unlocked portion may be taken in cash less withholding tax and
any fees charged or transferred to a regular RRSP or RRIF.
Superintendent of Pensions – Interpretive Guideline #17
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If the owner has a pension partner when applying to unlock funds,
then the pension partner must first sign and file with the authorized
issuer a waiver (
Waiver Form 14
) agreeing to the unlocking.
If the balance remaining in the LIRA, after unlocking up to 50 per
cent, meets the small amount unlocking in #1 above, then that
portion may also be unlocked and transferred to an RRSP, RRIF or
taken as cash less withholding tax and any fees charged . This
means the remaining balance will not need to be transferred to a
LIF or LITB, but this process must be documented.
5. Financial Hardship Unlocking
If an owner is suffering from a specific type of financial hardship,
an
application
may be made to the authorized issuer to unlock some or
all of the funds held in the LIRA. A summary of the financial
hardship program is outlined in this
document
.
Disclosure
Authorized issuers must provide the following information to a LIRA
owner within 30 days after the beginning of each calendar year:
•
the amounts of any transfers made in the most recently
completed calendar year;
•
the preceding year’s investment return;
•
any administration expenses deducted, and any other
payments or withdrawals made, in the most recently completed
calendar year; and
•
the value as at the end of the most recently completed calendar
year.
Death Benefits
When the owner of a LIRA dies, death benefits are paid as follows:
1) If the owner is a member owner, then:
a. If there is a pension partner on the date of death, that
pension partner opens a LIRA, the money is transferred,
and they are the pension partner owner;
b. If there is no pension partner owner OR the pension
partner has signed Form 12 which is a waiver to any
pension partner death benefit, the named beneficiary
receives the balance of the LIRA as a cash lump sum
payment, but the pension partner cannot be the named
beneficiary; or
c. If there is no named beneficiary, the estate of the owner
receives the balance of the LIRA as a cash lump sum
payment less withholding tax and any fees charged.
2) If the owner is a pension partner owner, then:
a. the named beneficiary receives the balance of the LIRA
as a cash lump sum payment less withholding tax and
any fees charged; or
b. if there is no named beneficiary, the estate of the owner
receives the balance of the LIRA as a cash lump sum
less withholding tax and any fees charged
Superintendent of Pensions – Interpretive Guideline #17
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Records Retention
While not required by legislation, it is considered best practice for the
transferring RPP administrator, or authorized issuer, to maintain a
record of the owner showing:
•
the name of the owner;
•
the amount transferred;
•
where funds were transferred;
•
the date of transfer; and
•
a copy of waivers, if there were any waivers sent with the
transfer.
Waivers
There are several waivers that may be applicable under a LIRA. They
are:
Form 8
Pension partner waiver to establish a LITB account
Form 10
Pension partner waiver to establish a LIF from a LIRA
Form 11
Pension partner waiver of entitlement to a 60 per cent
joint and survivor annuity from a LIRA
Form 12
Pension partner waiver of entitlement to a death benefit
from a LIRA
Form 13
Pension partner waiver to permit unlocking from a LIRA
due to shortened life expectancy or non-residency
Form 14
Pension partner waiver to permit up to 50 per cent
unlocking from a LIRA on establishment of a LIF or
transfer to a LITB
Provisions of the
LIRA Addendum
To be a LIRA, an RRSP contract must have, attached to and forming
part of it, the prescribed addendum. The prescribed addendum
provisions take precedence over any other terms in the LIRA contract
where there is a conflict.
The addendum provides:
•
that the only funds that may be transferred into a LIRA are locked-
in money from an RPP of another LIRA;
•
that funds may not be transferred out of a LIRA other than to:
o
another LIRA;
o
to purchase a life annuity;
o
a LIF; or
o
an RPP that permits such a transfer
•
who is liable when funds are transferred improperly;
•
that securities may be transferred to the LIRA if those securities
represent acceptable LIRA transfer funds;
•
the conditions and restrictions on the purchase of retirement
income arrangements;
•
for death benefit payments;
•
unlocking provisions and requirements including the restriction on
splitting the LIRA to reduce it to a small amounts;
•
that the LIRA must be administered in accordance with the Act and
Regulation;
•
that investments must comply with the rules for the investments of
RRSPs under the Income Tax Act, Canada;
•
that in the event of marriage breakdown, the LIRA may be split
Superintendent of Pensions – Interpretive Guideline #17
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between the owner and the ex-spouse with a matrimonial property
order or agreement filed with the LIRA issuer (note: the ex-
spouse’s portion remains locked-in). (See
Interpretive Guideline
05 – Division and Distribution of Pension Benefits on Marriage
Breakdown
); and
•
that funds in a LIRA may not be seized or attached by creditors,
nor may the owner assign them or use them as collateral;
•
that funds may be seized or attached under a maintenance
enforcement order or by Canada Revenue Agency.
For further information please contact:
Superintendent of Pensions
Alberta Treasury Board and Finance
Room 402, 9515 - 107 Street
Edmonton, AB T5K 2C3
For toll-free dialling within Alberta, call
310-0000 and then dial 780-427-8322.
Telephone: 780-427-8322
Fax: 780-422-4283
Email:
Employment.Pensions@gov.ab.ca
Internet:
http://finance.alberta.ca/business/pensions
Sign up for electronic notifications:
http://finance.alberta.ca/subscribe/epen
Document Outline - Interpretive Guideline #17 Issued: June 2016
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