Generally speaking, any money transferred from a registered pension plan into a locked-in account – Locked-In Retirement Account (LIRA), Life Income Find (LIF) or Locked-In Retirement Income Fund (LRIF) must remain “locked-in” and can only be used to provide retirement income. In certain situations, however, it is possible to apply for special access to money in an Ontario LIRA, LIF or LRIF.
Access to Locked-in Accounts
Applications for special access may be made in the following situations, using the specified FSCO pension form:
- you are facing specific types of financial hardship – Form 6
- you have an expected income of $34,067 or less (for applications signed in 2013) – Form 6 or Form 6.1
Individuals who qualify under specific circumstances of financial hardship may apply to the Financial Services Commission of Ontario (FSCO) for special access to the money in their Locked-in Retirement Accounts, Life Income Funds, or Locked-in Retirement Income Funds. There are six qualifying circumstances for making an application to FSCO to withdraw money from your locked-in account based on financial hardship:
- Low income: If you apply in this category, your expected total personal income before taxes for the next 12 months must be less than $34,067 in the year 2013. This amount changes every year.
- Risk of eviction from your home: You (or your spouse) must have received a written demand from the creditor for money owed on a debt secured against your residence—for example, a mortgage, property lien, or property taxes. You must need money to avoid the risk of eviction.
- Risk of eviction from your rented residence: You (or your spouse) must have received a written demand for the payment of rent owed, and need money to avoid the risk of eviction.
- You need money in order to pay the first and last months’ rental deposits on a residence you wish to rent.
- You need money to pay for medical treatment for you, your spouse or any dependants of either of you. The medical expenses you claim cannot be covered by a provincial health plan, your private health insurance, or any other source. You may claim for expenses already paid or for expenses you will incur in the future. You must provide a doctor’s letter stating that the medical treatment is necessary.
- You need money for residential renovations, alterations or construction to accommodate the use of a wheelchair, or other needs related to a disability or illness. The illness or disability must affect you, your spouse or a dependent of either of you. The renovations or alterations can be made to your home or the dependent’s home. The money can also be applied to the cost of including features to accommodate an illness or disability in the construction of a new home. You must provide a doctor’s letter stating the renovations, alterations or construction are necessary to deal with an illness or disability.
If you are making an application based on financial hardship, you may be expected to use some of your assets to deal with the hardship. If you own eligible assets, the regulations require that their value be deducted from the amount of money that you are applying to withdraw from a LIRA, LIF, or LRIF. Once this has been done, the regulations also require that you qualify to withdraw at least $500 to deal with your financial hardship. FSCO cannot approve your application if you only qualify to withdraw less than $500. The same rules apply to any assets owned by your spouse. If you are making an application to help a financial dependent of either or both of you, the rules apply to the dependent’s assets as well. However, many types of assets are exempt from this requirement and do not need to be used to deal with the hardship. These include:
- your principal residence
- a personally-operated business or farm (to a limit of $50,000)
- motor vehicles
- essential tools of trade necessary to employment
- personal items such as clothing and jewelry
Financial Hardship Unlocking Fees
The Pension Benefits Act allows individuals who qualify under certain circumstances of financial hardship to apply to the Financial Services Commission of Ontario (FSCO) for special access to the money in their Locked-in Retirement Accounts, Life Income Funds, or Locked-in Retirement Income Funds. Successful applicants will be charged an application fee equal to 2% of the amount the applicant is entitled to withdraw (with a minimum fee of $200 and a maximum fee of $600) in order to offset FSCO’s administrative costs.
Important points to remember:
- The creditor protection provisions of the Pension Benefits Act no longer apply to any money withdrawn from an Ontario locked-in account and the money may be seized by your creditors.
- Money withdrawn from an Ontario locked-in account is subject to income tax, which may be withheld at the time the withdrawal is made.
- Before you make an application in Ontario for special access to money in your LIRA, LIF or LRIF, it’s important to verify that your locked-in account is subject to Ontario law, rather than federal legislation or the law of another province or territory. If you worked for a federally regulated industry such as banking, telephone, television or airline transportation, for example, your locked-in account may be subject to federal law. If you’re not sure, check with the bank, insurance company or other institution that administers your account. If their records indicate that your account is not subject to Ontario law, the financial institution cannot release any money from your locked-in account based on financial hardship.
- Where your spouse’s consent is required, you must include their signed consent on your application to withdraw money from an Ontario locked-in account because of financial hardship. The spouse’s signature must be obtained on a date not more than 60 days before the date your financial institution receives your completed application.
- Your completed, signed and dated application must be received by FSCO within 60 days of the date it is signed.
- You may only apply for special access to one locked-in account at a time.
- Withdrawing money from your locked-in account may affect your eligibility for certain government benefits, such as social assistance.
Pension Unlocking: Non-Hardship
Any money transferred from an Ontario registered pension plan into an Ontario locked-in account (LIRA, LIF or LRIF) must remain “locked-in” and can only be used to provide retirement income. There are exceptions which provide special access to locked-in money. There are separate rules for special access in certain situations of financial hardship and in certain situations of non-hardship. The rules for special access in non-hardship situations are set out below. Special access has been expanded and applications can be made based on one or more of the following criteria:
- your life expectancy has been shortened to two years or less – Form 5
- you are at least 55 years old and the total value of the funds in all of your locked-in accounts is less than $20,440 (for applications signed in 2013) – Form 5
- amounts transferred into your locked-in account exceed federal Income Tax Act limits – Form 5
- you are a non-resident of Canada and 24 months have passed since the date of your departure from Canada – Form 5
- after December 31, 2010, you transferred money into an Ontario life income fund that is governed by the requirements of Schedule 1.1 and, within 60 days of this transfer, you want to withdraw or transfer up to 50% of the total money that was transferred to the Schedule 1.1 LIF – Form 5.2