What Does Locked-In Retirement Account Mean?

A Locked-In Retirement Account (LIRA) is a type of registered retirement savings alternative in Canada that locks in the pension funds in investments. While the funds are locked in, they are unavailable for cash out. Pension funds that are transferred to a LIRA are used to purchase a life annuity, transferred to a life income fund (LIF), or to a locked-in retirement income fund (LRIF). Upon reaching retirement age, the life annuity, LIF and/or LRIF, provide a pension for life.

Understanding a Locked-In Retirement Account (LIRA)

The locked-in retirement account is designed to hold pension funds for a former plan member, former spouse or common-law partner, or a surviving spouse or partner. The LIRA may be elected at any age to hold funds transferred from a pension plan upon the termination of membership in a pension plan; the disintegration of a marriage or common-law partnership; or death before retirement. Unlike RRSPs, which can be cashed in whenever the owner decides, a locked-in retirement account does not provide such an option.

How LIRAs Operate

According to the Quebec government website, "unlike an RRSP, the funds in an LIRA are locked-in and can only be used to provide a retirement income. Thus, the amounts cannot be withdrawn, except under certain circumstances in which a refund from your LIRA is permitted. Like an RRSP, you can hold a LIRA until Dec. 31 of the year in which you reach age 71. Before that date, you can transfer your LIRA to another LIRA, for example, if you change financial institutions. You can also transfer your life income fund (LIF) to a LIRA, in particular when you want to postpone payment of a retirement income. Consult the list of financial institutions offering LIRAs or LIFs to find out what transfer instruments are available."

These plans are governed by federal or provincial pension legislation. Depending on the province, there are different rules on how to unlock locked-in pension funds. Every locked in pension must comply with the legislation of a specific province or under federal legislation. Various reasons for unlocking include low Income, potential foreclosure, eviction for being behind in rent, first month’s rent and security deposit, high medical or disability costs, no longer a Canadian resident, and shortened life expectancy.

Unlocking 50% of a LIRA can be done one time if you are 55 years old or older in some provinces and federally. Small balance unlocking is allowed if the balance is a certain amount. 

It's best to consult a financial advisor if the amounts involved are substantial.