Pension locking-in rules are designed to assure that a former pension member doesn’t deplete funds before retirement and draws on them in a measured manner once retired. In last month’s article, we outlined the maximum percentage that can annually be drawn from a locked-in retirement fund. (See the sidebar table for a related key development for registered retirement income fund (RRIF) minimums.)
Beyond these annual maximums, there may be situations where some or all of such funds may be unlocked. Some may be triggered at will, some are elective based on financial criteria and still others may be available based on personal circumstances. The availability and qualifying criteria vary by jurisdiction (i.e., the provincial or federal authority), as summarized in the accompanying table for the most common types of unlocking options.
Unlocking locked-in retirement savings[1]
“One-time” lump-sum unlocking
It may be possible to unlock a large percentage of a locked-in fund. Qualification may depend on reaching a particular age and/or that the application is being made concurrent with the original transfer of pension funds into a locked-in plan. The planholder may choose to unlock a lesser amount than the full percentage allowable, but generally cannot later unlock the remaining difference (at least not under this provision).
Shortened life expectancy
This may be available where a person’s medical condition is such that life expectancy is shortened. Certification from a medical practitioner will be required. In some jurisdictions the opinion must state an expectation of death within a particular time period (e.g., two years), whereas in others it may be sufficient that the person’s life expectancy has been shortened considerably.
Non-residency
An application may be made once a person has ceased to be a Canadian resident, proof of which will usually require showing that the Canada Revenue Agency (CRA) has accepted a filed Form NR73, Determination of Residency Status (Leaving Canada). Some jurisdictions require the person to be non-resident for a minimum time period (e.g., two years) and others not, but time may be relevant in the CRA’s review of Form NR73 nevertheless.
Small amount
Where the combined locked-in account balance is fairly small, authorities may allow the entire amount to be unlocked. The availability of this option and the potential amount to be unlocked may depend on a person’s age.
Financial hardship or temporary income
Where a person is in a position of financial need, an application may be made to unlock an amount in excess of the maximum annual percentage. The application is generally required each year. It may require a minimum age, and will require evidence of one or more of low income, pending eviction or foreclosure, or urgent need for cash for rent or medical need.
Callout Box – RRIF minimums lowered
The 2015 Federal Budget tabled on April 21 included a lowering of minimum withdrawals for registered income funds (including locked-in varieties), effective for 2015 and following years. As last month’s article included locked-in maximum percentages alongside RRIF minimums, we thought it worth publishing the reduced RRIF minimums here.
RRIF minimum withdrawal factors (percentages)
