# Ontario LIRA unlocking rules



## Eclectic12 (Oct 20, 2010)

Now that I'm getting within striking distance of retiring, I'm investigating the Ontario LIRA unlocking rules.

I'm pretty sure the DB pensions allowed an early retirement with penalties at age 55 so I think I can trigger the 50% unlocking by opening a LIF then filling out the paperwork to apply within sixty days. The financial institution holding the LIRA didn't have records that it was an Ontario pension when I transferred the second DB pension into the same LIRA so I suspect they will go with what the Ontario regulator says which is age 55. If the FI wants proof, I doubt I have a copy of the pension info to prove age 55.

I'm planning on working a bit beyond age 55 so converting to a LIF to have to withdraw at age 56 isn't all that appealing.


Can I open the LIF at age 57, do the unlocking then have the withdrawals happen at at 58?


I've got too much in the LIRA, between the proceeds of the two DB pensions plus the growth since so that the "unlock as the FMV is too small" won't apply until a couple of years of withdrawals happen.


Cheers


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## fireseeker (Jul 24, 2017)

E12, you may find your answer at two links I posted previously.
I looked into the rules a while ago because I anticipated we may have a small-value LIRA. Turns out the holdings have surged in value. It's a good problem to have.
IIRC, "unlocking" means moving up to 50% to an RRSP -- you can't unlock it directly to cash.


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## Eclectic12 (Oct 20, 2010)

The 50% unlocking is cash or RRSP according to the Schedule 1.1 Life Income Funds.



> *The 50% Unlocking Withdrawal or Transfer*
> Every time money is transferred into a New LIF from a LIRA or a registered pension plan on or after January 1, 2010, the New LIF owner may applyto unlock and withdraw in cash,or transfer to an RRSP or RRIF,up to 50% of the“total market value of the assets” that were transferred into the New LIF(section8(2.1)of Schedule 1.1).


https://www.fsco.gov.on.ca/en/pensions/policies/active/Documents/L200-303.pdf

I'm thinking multiple transfers to a LIF implies it is a range of ages instead of one particular one but I need to read through the details more thoroughly.


Cheers


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## sags (May 15, 2010)

The history of the unlocking of LIRA could be viewed as a tale of caution.

I remember back around 2006, there was a long lively discussion on the unlocking of a LIRA on the popular old 55Plus forum. (some CMF members may remember)

At that time LIRAs were locked in but the pension plan for Ontario MPPs was being changed from a DP to a DC pension. The MPPs voted themselves the ability to transfer money out of their LIRAs.

The general public read media reports of the change and demanded that everyone have the same right to withdraw 100% of the cash.

There was some push back that people would withdraw the money, and give it to their kids or spend it and have nothing left for their retirement.

After a period of intense lobbying, the government relented and allowed a one time transfer of 50% of a LIRA in cash or to an RRSP.

As luck would have it, shortly after the law was enacted and some people removed the money from their LIRA.....the Great Recession hit and the stock markets crashed.

I knew teachers who agonized to keep their monthly pension benefits or commute the entire value around the same time period. 

The wife of my best friend was offered $1,000,000 in cash but chose to keep the pension, much to his chagrin since he had visions of a new boat and some toys. I also knew teachers who took the commuted value and ended going back to work shoveling snow for a landscape company at our warehouse.

I would think it highly probable that many of those who took their money out of the LIRA suffered significant losses, unless they put it in GICs or term deposits.

I am confident that CMF members would have given due diligence to their current plans, but as it happened the Ontario government deciding to allow capital to be unlocked from a LIRA would probably rank near the top of the worst timely decisions of a government. 

And that is what makes it a cautionary tale.


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## RBull (Jan 20, 2013)

^Interesting that it started with politicians looking for special treatment. 

I am generally an advocate of personal choice and personal responsibility. Unfortunately on many things financial I have resigned myself to agreeing we need strict rules on people accessing money, debt loads, increasing CPP contributions/payouts as a few examples; since so many people make poor choices with their finances. Sometimes this costs not only that person but all of society.


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## OptsyEagle (Nov 29, 2009)

Personal choice only works if you have an ability to use yours brains over your emotions. Having a brain that actually works reasonably well would help as well. Since about 1/2 the population of our country has proven they do not, we tend to have to do something to not only protect them from themselves but also protect the rest from being forced to help those idiots later,when they inevitably make the wrong decisions.


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## Retired Peasant (Apr 22, 2013)

Sometime in the 90's, before the unlocking rules, one could get a LIRA unlocked just by transferring it a couple of times i.e. transfer to another FI. Sometimes one transfer would do it, sometimes it would take 2 transfers. This worked particularly well with the big five. I doubt it would work today; staff are likely better trained.


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## Eclectic12 (Oct 20, 2010)

sags said:


> The history of the unlocking of LIRA could be viewed as a tale of caution ...
> After a period of intense lobbying, the government relented and allowed a one time transfer of 50% of a LIRA in cash or to an RRSP.
> 
> As luck would have it, shortly after the law was enacted and some people removed the money from their LIRA.....the Great Recession hit and the stock markets crashed.
> ...


While the history is interesting ... aren't you missing the forest for the trees?

Allowing 50% of a LIRA to be sent to an RRSP or cash IMO is small potatoes versus the DB pension plan that allows the holder to choose to leave it, taking the commuted value. 

Long before the LIRA unlocking would impact the pensioner wowed by the $1 million CV, the small amount allowed to go to a LIRA plus limited RRSP contribution room likely means a lot of the $1 million had to be reported as income, paying the top tax rate. Without knowing the age as well as the DP pension benefit, it is a guess but based on some current examples, about $600k of the $1 million would be taxable income. I would have thought that would give the member pause to re-consider but it may be that people didn't find out until it was too late.

Having that much be taxable income in a single year seems far worse of a problem than being able to take as cash about $200K of the $400K LIRA. Though it does have the same issue of a fair chunk likely taxed at a high level.


The three DB pensions I have been in give the choice of a CV instead of the DB pension to those that quit, before age 55. Everyone else has to take the DB pension. 





sags said:


> ... I am confident that CMF members would have given due diligence to their current plans, but as it happened the Ontario government deciding to allow capital to be unlocked from a LIRA would probably rank near the top of the worst timely decisions of a government.
> 
> And that is what makes it a cautionary tale.


I see it as worse for some DB pensions to allow members to choose on their own to take the CV and lose a large chunk to high income taxes. Those negotiating this optional part deserve criticism, though the pension authority could ban it.


As for me, the reason I have a LIRA from CV's from two DB pensions it that the benefit earned was small plus not indexed. In my case, the entire CV was nowhere near $1 million so it entirely fit into the LIRA. The unlocking for me is about removing the LIF withdrawal restrictions by transferring to an RRSP, not about getting cash out. And as you suspected, it's not about buying more toys or seeing the retirement funds as slush money to spend any which way.


Cheers


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