Locked-in Retirement Account (LIRA): How It Works

Don’t leave a company pension hanging after changing jobs. One option is to roll it over into a locked-in retirement account (LIRA) where it can continue to grow until retirement.

Mature man sitting outside with dog, researching LIRA options.

A locked-in retirement account, or LIRA, is a government registered account into which a locked-in company pension can be transferred. It’s essentially a registered retirement savings plan (RRSP) in which your pension funds are “locked” until you retire.

A LIRA does not allow for any cash withdrawals before retirement (except in exceptional circumstances, as explained below).

As with registered retirement savings accounts, you can only hold a LIRA until December 31 of the year in which you turn 71. At this point, you must transfer the funds held in your LIRA into a life annuity, life income fund (LIF), or locked-in retirement fund (LRIF).

Pros and cons of locked-in retirement accounts

Pros

Since LIRA funds are locked away, you can’t withdraw them before retirement age — which prevents you from spending them.
LIRA investments can be self-managed rather than having to rely on your former place of work to do it.
LIRAs eliminate the risk of losing your pension money if your employer goes out of business.
Any earnings are tax-deferred.

Cons

Some financial institutions charge high management fees for LIRA accounts.
Regulations vary from province to province, making it tricky to know the rules surrounding your LIRA.
Pre-retirement withdrawals are allowed only under limited circumstances.

LIRA eligibility requirements

Only individuals under the age of 71 can open a LIRA. That being said, not everyone under that age needs to think about opening one.

A LIRA is an option if you leave a job with an employer-sponsored pension. You can typically choose to remain in the pension plan and wait until retirement to receive your pension income, or you can take the commuted value of the pension and transfer it into a LIRA. Your options may vary based on the rules of your pension plan and the pension legislation in your province or territory.

You can open a LIRA at any financial institution you like. You can also choose to manage it yourself, or have a robo-advisor or financial advisor do the work for you.

🤓 Nerdy Tip: LIRAs are not just for former pension plan members but can also be for their former or surviving spouses or common-law partners.

How to withdraw from a LIRA

Since LIRA plans are governed by provincial pension legislation, the rules on how to unlock and withdraw from a LIRA will differ from province to province. The territories do not have their own pension legislation, so federal legislation applies to pensions earned there (and calls this type of account a “locked-in RRSP.” Note that the applicable legislation is based on the province or territory where you lived and earned the pension, even if you move afterwards.

Most provinces will allow you to unlock up to 50% of your LIRA at the age of 55, though the rules and amounts vary widely. Generally speaking, LIRAs do not allow for withdrawals. Your savings and investments are held until retirement, at which point you will transfer them into an LIF or purchase a life annuity.

While LIRAs are meant for retirement, there are a few special circumstances in which you may be able to withdraw a lump sum of cash from your LIRA at an earlier stage. Depending on the legislation governing your pension, these circumstances might include:

Unemployment, low income or financial hardship
Shortened life expectancy
Permanent departure from Canada
Medical or disability expenses
Having a LIRA balance below a certain amount

» MORE: How do registered disability savings plans work?

LIRA rules and tax implications

Like an RRSP, a LIRA is tax-sheltered. This means that as long as the money stays within the LIRA, you will not be taxed on any growth. Any withdrawals are taxed as income, however. In most cases, your LIRA will remain untouched until it comes time to transfer it to an LIF or a life annuity upon retirement.

Unlike with RRSP contributions, money transferred into a LIRA is not tax-deductible. You already benefited from a tax deduction when you contributed to your pension plan.

Since the rules and regulations of LIRAs vary by province, it may be necessary to speak to a financial advisor or knowledgeable representative from your financial institution to understand LIRA rules where you live.

LIRA alternatives

You might see a locked-in registered retirement savings plan, or locked-in RRSP, described as an alternative to a LIRA. But that’s not really the case, as you don’t get to choose between the two. Instead, these accounts are essentially the same, but LIRAs are available in provinces with their own pension legislation, while locked-in RRSPs are available in those governed by federal pension legislation. Federal legislation also applies to pensions earned in federally regulated businesses, like banking and transportation, no matter where you live.

You can name a beneficiary to your LIRA, who will receive the funds should you pass away. If the beneficiary is your spouse or common-law partner, they may be able to make a tax-free transfer into their own RRSP or registered retirement income fund (RRIF), depending on the provincial or federal rules. If you name someone other than your spouse (or a financially dependent child), the plan becomes part of your estate and is subject to taxes. It’s a good idea to speak with a financial advisor to ensure you understand the rules governing your LIRA so you can name an appropriate beneficiary.

No, you can’t. A LIRA is only for preserving locked-in pension amounts.

Early LIRA withdrawals are only allowed in very specific situations, such as shortened life expectancy or financial hardship. Your LIRA is meant for retirement and the rules and regulations surrounding this account make it very difficult to withdraw early.