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How to Unlock Your Pension

Pensions can be an excellent way to supplement your retirement income. Sometimes, however, there may be a need to access these funds before you retire. If you have a “locked-in” pension or RRSP from a previous employer, there are ways to access this money.

Why Unlock My Pension?

There are many reasons why someone would want to unlock their pension. Perhaps you need to access the money because you are in financial hardship due to job loss, reduced income, or debt. Alternatively, maybe you want to withdraw money from your locked-in account and transfer it to a RRSP where you can access it later without restrictions. Whatever the reason, accessing your pension may be a positive move for your financial future. A financial advisor can help you determine whether unlocking your pension is the right move for you.

How Do I Unlock My Pension?

The Provincial and Federal Governments of Canada allow individuals with a locked-in pension (also referred to as Locked-in Retirement Accounts [LIRA] or Locked-in RRSP) to access their funds if they meet certain criteria. Put simply, if you are in financial need, it is likely that you would qualify to access some of your locked-in funds.

1Financial Hardship
A common reason for accessing a pension before retirement is due to financial hardship. There are four situations where you may be able to claim financial hardship and access your locked-in pension: 1) low expected income in next 12 months 2) payment of first and last months’ rent 3) arrears of rent or mortgage 4) medical expenses.
2Unlock 50% By Transferring
If you are at least 55 years old or at an age where you would have been eligible for a pension from the originating pension plan (whichever is less) you can transfer your locked-in pension to a Life Income Fund (LIF). Once transferred, you are able to make a one-time withdrawal from this LIF of 50%, which you can use as income or transfer to unlocked investment account such as a RRSP.

3Small Pension Amount after Age 55
If you are 55 or older and the total of your locked-in pension(s) is less than $21,000 you can apply to unlock your pension.

4Non-residents
If you are a non-resident of Canada and 24 months have passed since the date of your departure from Canada you may unlock your pension.

5Shortened Life Expectancy
If your life expectancy has been shortened to two years or less you can apply to unlock your pension.
The benefits and drawbacks to unlocking pensions are often debated in financial circles. To find out if this is the right move for you, be sure to talk to a financial advisor.

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