# LIRA contributions



## NattyCanuck (Jan 10, 2017)

Good day all,

Google doesn't seem to help me on this question, so here I am.

Why can't you contribute to a LIRA after it's in place? I understand the concept of why you can't withdraw from it, but I don't understand or know the _WHY_ of not being able to contribute.

Thanks!


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## mordko (Jan 23, 2016)

For one thing, you don't want to contribute to your LIRA. LIRA is basically and RRSP with a bunch of additional rules and restrictions. If you have money and RRSP room, you should contribute to your RRSP rather than LIRA. Same thing but more flexibility.


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## NattyCanuck (Jan 10, 2017)

mordko said:


> For one thing, you don't want to contribute to your LIRA. LIRA is basically and RRSP with a bunch of additional rules and restrictions. If you have money and RRSP room, you should contribute to your RRSP rather than LIRA. Same thing but more flexibility.


Thanks for the response, however I'm not asking anything about the advantages or disadvantages, just asking for an explanation on why it works that way.


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## GreatLaker (Mar 23, 2014)

NattyCanuck said:


> Thanks for the response, however I'm not asking anything about the advantages or disadvantages, just asking for an explanation on why it works that way.


LIRAs are created specifically to hold pension money. If you leave another pension you may be able to transfer the funds to an existing LIRA but only if it has the same rules and jurisdiction (federal / provincial).

There is a good roadmap here: http://www.avrexmoney.com/retirement/locked-in-retirement-accounts-a-pension-road-map/


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## NattyCanuck (Jan 10, 2017)

GreatLaker said:


> LIRAs are created specifically to hold pension money. If you leave another pension you may be able to transfer the funds to an existing LIRA but only if it has the same rules and jurisdiction (federal / provincial).
> 
> There is a good roadmap here: <snip>
> 
> That's closer to what I'm looking for, but I still don't see the WHY part of why I can't contribute more to a plan that's already in place. If they are trying to force the issue of taking it at retirement because it's good for you, why can't you add additional funds to make it all that much better?


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## GreatLaker (Mar 23, 2014)

Other tax-advantaged savings plans are designed for ongoing contributions: RRSPs and TFSAs.

Pension money: LIRA
Non-pension savings: RRSP (tax-deferred), TFSA (tax-paid)


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## Beaver101 (Nov 14, 2011)

NattyCanuck said:


> GreatLaker said:
> 
> 
> > LIRAs are created specifically to hold pension money. If you leave another pension you may be able to transfer the funds to an existing LIRA but only if it has the same rules and jurisdiction (federal / provincial).
> ...


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## OptsyEagle (Nov 29, 2009)

The government created rules around RRSPs and the contributions to them. They came up with rules to govern LIRAs, keeping in mind pension rules, etc. They did not come up with LIRA rules that matched RRSP rules so if they allowed people to contribute to LIRAs directly then someone might come up with some benefit inside a LIRA that an RRSP contributor is not getting. A benefit that the government did not consider when they came up with the rules surrounding LIRAs. The easiest way to deal with it is to restrict ones ability to contribute directly to a LIRA.


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## Beaver101 (Nov 14, 2011)

OptsyEagle said:


> The government created rules around RRSPs and the contributions to them. They came up with rules to govern LIRAs, keeping in mind pension rules, etc. They did not come up with LIRA rules that matched RRSP rules so if they allowed people to contribute to LIRAs directly then someone might come up with some benefit inside a LIRA that an RRSP contributor is not getting. A benefit that the government did not consider when they came up with the rules surrounding LIRAs. *The easiest way to deal with it is to restrict ones ability to contribute directly to a LIRA*.


 ... there's already restrictions in place for one to contribute or trying to "top up" the pension or subsequently the LIRA is the PA used in calculating your RRSP contributions. Government feel this would be fairest to deal with double-dipping being an employee with a pension versus one without.


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## P_I (Dec 2, 2011)

I think the WHY part is a LIRA is a rollover from a company's defined benefit (DB) pension plan when you leave the company. The objective of a DB plan is it promises a specified pension payment, lump-sum (or combination thereof) on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age. When you leave the company you've elected to take control of the deemed value of the DB pension plan and thus *lock-in* that valuation.

For retirement planning purposes, you still can (and should) contribute to your RRSP(s), which exist as the additional means to save for retirement beyond a company pension plan. A LIRA and a RRSP are very similar investment vehicles. Your investment strategy for your RRSP(s) can match that of your LIRA. Given these points, I'm not sure why any contribution you'd want to make just isn't made to a RRSP? There's no inherent extra benefits to a LIRA, just extra restrictions on when and how funds can be withdrawn.


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## NattyCanuck (Jan 10, 2017)

Thank you all for your responses. As I said before, I am not requesting information on the benefits of contributing to an alternative vehicle, just looking to see if anyone here has an explanation into the workings of WHY you can't contribute to a LIRA. 

From what I'm gleaning here, the basic WHY is they want to punish you for moving your pension out of the organization's pension plan and force you to leave it idle. There's no disadvantage to the original company if you are allowed to contribute more to a LIRA (it's already gone from them). You can choose the type of portfolio you want it locked into, and are forced to withdraw it at a much later date, subject to specific rules. 

I still can't see any specific, well-documented reason they would restrict further contributions. I think maybe I'll call on the province to find out more information as to the _why_.

Cheers!


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## Beaver101 (Nov 14, 2011)

NattyCanuck said:


> Thank you all for your responses. As I said before, I am not requesting information on the benefits of contributing to an alternative vehicle, just looking to see if anyone here has an explanation into the workings of WHY you can't contribute to a LIRA.
> 
> From what I'm gleaning here, the basic WHY is they want to punish you for moving your pension out of the organization's pension plan and force you to leave it idle.


 ... not exactly as you're to then to handle those funds (aka invest) those funds yourself now. 


> > There's no disadvantage to the original company if you are allowed to contribute more to a LIRA (it's already gone from them).
> 
> 
> ... correct in which case the LIRA is now yours and not the responsibility of your employer's. There is no advantage to continue contributing to pension monies on your own given all the restrictions (locked in) in place.
> ...





> I think maybe I'll call on the province to find out more information as to the why.


 ... good luck in getting a satisfactory answer.


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## heyjude (May 16, 2009)

The government decrees the rules because they can. The LIRA was designed for a specific purpose: to hold the assets of a pension plan paid for by an employer. For other purposes, there are other retirement vehicles.


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## mordko (Jan 23, 2016)

> I think maybe I'll call on the province to find out more information as to the why.


Good to see our own Canadian Don Quixote is very much alive and kicking.


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## twa2w (Mar 5, 2016)

When you leave a job that has a pension plan, you normally have 2 options. You can leave the pension with the employer or you can commute the cash value to a lira or lrsp.
If you leave the pension with the employer, you cannot make further contributions to the pension. Since the LIRA is designed to somewhat mimic the pension but allow you to control the investments, instead of the pension plan, it makes sense to not allow you to further contribute to it. Also various pension plans have various rules on contribution which may not fit with contributions you could potentially make after leaving the company.
The LIRA also has restrictions that ensure it is somewhat similiar in withdrawal vis a vis the pension.
OIOW... 
In the distant past, you had one option when you left a company with a pension. You could not take money from a pension once it was vested. It stayed with the pension plan until you were eligible for a pension.
Some people wanted better control over the investments in the pension and access to the capital in case of early death etc.

The other alternative for retirement at the time was an RSP. 

So the government in their wisdom decided to allow people to commute their pensions. They couldn't allow people to put them into their RSP'S because RSP'S could be cashed at anytime. A pension is set up by the company to to provide an income in retirement so there had to be some restrictions.
Rather than create an entirely new product for what they thought would be a very limited market, the banks, ins co's etc suggested using the same platform as the RSP but putting withdrawal restrictions on it that would somewhat mirror the original pension legislation. 

So the LIRA is not an alternate RSP. 

Think of an RSP as a personal retirement savings plan.

Think of a LIRA as a company pension plan with self directed investment option. Since you are no longer with the company you can no longer contribute but you can control the investments. Your terms remain similiar to what you had in the pension but you control the investment.
You could have the pension plan continue to manage the money or manage it youself with a LIRA.


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## OnlyMyOpinion (Sep 1, 2013)

If you want to explore a richer arcane minefield of 'Why' with regard to LIRA's, ask why the unlocking and transfer to RRSP rules are so complex and variable between provinces. The question of why you can't continue to contribute to a commuted pension is simple - its the law.


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## Eclectic12 (Oct 20, 2010)

NattyCanuck said:


> ... Why can't you contribute to a LIRA after it's in place?
> I understand the concept of why you can't withdraw from it, but I don't understand or know the _WHY_ of not being able to contribute ...


Not sure if it was easier to make a rule, whether those writing the rules figured most would prefer to contribute to their personal RRSP that does not have the restrictions the LIRA has but provides similar benefits or whether they figured it was an easy way to avoid complaints (what do you mean I can't withdraw? I thought I was contributing to my RRSP and now I need the money!!!!).

Without a conversation with whomever wrote the rules or some sort of investigative article - I don't think we'll find out.


Technically ... one can view it as contributing twice in that I left two company pensions that were under the same pension legislation so the proceeds from each went into the same LIRA account. It was one contribution and done ... but two contributions were made to the same account.


Cheers


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... you can't contribute to it because it is "pension" money that the employer owns ... LIRA is pension money transferred out of the pension plan when you leave your employer ... it's money set aside by your "employer" for your retirement after so many years of service. And besides, why would you want to "contribute" to a pension plan when your employer is doing that?


YMMV ... some have posted of having employer contribution only pensions. 

In my case, it was combined employer and employee pensions for all three. Leaving two of them meant that a % had to go to the LIRA, another % went to my RRSP and in one case, I could have chosen for a % to be paid as taxable income.


The big reason I prefer personal RRSP contributions instead is that it is more flexible.


Cheers


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## Eclectic12 (Oct 20, 2010)

NattyCanuck said:


> ... From what I'm gleaning here, the basic WHY is they want to punish you for moving your pension out of the organization's pension plan ...


Interesting POV ... I wish there were more times that I was being "punished" where the forced alternative has more privileges. :biggrin:




NattyCanuck said:


> ... and force you to leave it idle ... You can choose the type of portfolio you want it locked into ...


??? ... I make the same buy/sell/wait/convert decisions in my LIRA as my Group RRSP so I am not sure what you mean. For the first LIRA, I started with low cost MFs but have converted to ETFs and specific stocks.

Like any other account including a taxable one, what the account allows plus it's associated costs are the limits, where changes can be made at any time.


Cheers


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## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> YMMV ... some have posted of having *employer contribution only pensions*.


 ... ???? isn't a DB plan mostly "employer" contributions? although you can have a hybrid (rip off) version of a mix of employer and employee-to match contributions. Or do you mean to say "employee" contributions only here which is a DC plan and in which case, I would want to take out "my $" as soon as I'm able to. Doesn't matter whichever version of a pension plan you have, the minute you decided to transfer those monies to a "LIRA", no further contributions are allowed in that LIRA. 

Btw, I have yet to hear of another employer would be so willing to allow a boarding employee to transfer monies from another pension plan to its plan (sans Executives and Federal pension plans - those have special privileges) for those who hasn't moved it to a LIRA.


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... ???? isn't a DB plan mostly "employer" contributions? although you can have a hybrid (rip off) version of a mix of employer and employee-to match contributions ...


Without some source of checking contribution sources - it is hard to tell how many DB plans have employer only funding versus the version that has both the employer & employee contributing.

Of course, employee contributions tells us that there are multiple funding source - not how the contributions plus growth works out. I have had employers say they are taking a pension contribution holiday as the investments have grown dramatically versus estimated future pension liabilities.


The one reference I have seen on the topic says most DB pensions have both employer and employee contributing. Without other sources plus that most of those I talk to have $$$ deducted each pay cheque for the DB pension, it seems to be true.




Beaver101 said:


> ... Or do you mean to say "employee" contributions only here which is a DC plan ...


No ... I mean "employer only contributions for a DB pension", though I seem to have left the "DB" part off.

TD bank as an example opened a new DB pension in 2009 where "For an employee who makes no contribution, the new plan provides a pension of 1.4% of salary approaching retirement for each year of plan membership, up to the C/QPP maximum pensionable earnings". 
https://www.td.com/corporate-responsibility/crr-2009/case-studies/new-defined-pension-plan/index.jsp

The two places I can recall people saying they had a DB pension that the employer covered all the costs are the auto makes and I seem to recall the post here about it was from someone who worked in the financial industry.




Beaver101 said:


> ... Btw, I have yet to hear of another employer would be so willing to allow a boarding employee to transfer monies from another pension plan to its plan (sans Executives and Federal pension plans - those have special privileges) for those who hasn't moved it to a LIRA.


I was offered that choice (I believe twice) ... though so far, the benefit the entire old pension buys has not seemed worth it to me to transfer.


Cheers


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