LIRA, locked-in RRSP and Pension Funds
Understanding your options when you leave a job with a retirement plan. LIRAs, RRSPs, and pension funds are essential tools for protecting and growing your retirement savings.
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Understanding pension plans
When you leave a job with a pension plan, your accumulated funds don't disappear—they need to be transferred to a suitable vehicle. This is where LIRAs, RRSPs, and pension fund options come in. Understanding these tools is essential to maximizing your retirement savings.
Protected funds
Your retirement savings are locked in and protected from creditors.
Growth in a sheltered environment
Investments grow tax-free until withdrawals are made.
Lifetime income
Conversion to a LIF (Livret d'Investissement à Retraite - LIRA) at retirement for a regular and structured income
The Locked-In Retirement Account (LIRA)
The LIRA is a registered account that receives funds transferred from a jurisdictional registered pension plan (RPA). provincialThis transfer usually occurs when there is a change of employment, a termination of employment, or the end of the pension plan.
The funds in a RRSP are "locked in" — they are intended exclusively for retirement and cannot be freely withdrawn like a RRSPHowever, you retain control over your investments: mutual fund, Segregated funds, GICsstocks and bonds.
Advantages of the LIRA
Tax-free growth: Like an RRSP, investments in a LIRA grow tax-free until withdrawal. You only pay tax when you receive retirement income.
Placement flexibility: You choose your investments from a wide range of options — often more diversified than what your old pension plan offered.
Protection against creditors: In most provinces, frozen funds are protected in the event of bankruptcy or insolvency.
Limitations of the LIRA
Fixed assets: You cannot freely withdraw the funds before retirement. This is the trade-off for the protection offered by the locked-in system.
Limited exceptions: Early withdrawals are possible in specific situations: reduced life expectancy, serious financial difficulties, a small balance, or non-residence in Canada. The rules vary by province.
LIRA → LIF retired
Upon retirement, the LIRA is converted into a Life Income Fund (LIF). The LIF provides you with periodic income, with annual minimums and maximums set by provincial regulations. It is the locked-in equivalent of a RRIF.
The Locked-In Registered Pension Plan (LIRPP)
The RRIF works similarly to the LIRA, but it is intended for funds from jurisdictional pension plans. FederalThis particularly concerns employees in the transportation, telecommunications, chartered banking, and federal public service sectors.
Like the LIRA, the funds are locked in and grow tax-free. The account holder can choose their investments from the same options as other registered accounts.
Differences with the LIRA
Jurisdiction: The LIRA is governed by provincial laws, the RRSP by federal laws. The choice depends on the jurisdiction of your former pension plan—you cannot choose freely.
Immobilization: In some cases, the RRSP allows a portion of the funds (often 50%) to be released and transferred to a RRSP or a RRIF, offering more flexibility than the LIRA.
Temporary income: The provincial LIRA (in Quebec) allows for temporary income of up to 40% of the maximum pensionable earnings (MPE), an option that does not exist with the RRSP.
Good to know — Demobilization
If your RRSP is from a federal plan, you may be eligible to unlock up to 50% of your funds when transferring them to a LIF. This unlocked portion can be transferred to an RRSP or RRIF, giving you more flexible access to your savings.
Pension funds (RPA)
A pension fund, or Registered Pension Plan (RPP), is a plan established by an employer to provide retirement benefits to its employees. Depending on the type of plan, the employer, the employee, or both contribute.
Types of diets
Defined benefit (DB) plan: The pension is calculated using a formula based on salary and years of service. The employer assumes the investment risk — you know in advance how much you will receive in retirement.
Defined contribution (DC) plan: Contributions are fixed, but the final pension depends on the returns obtained on investments. The investment risk is shared with the employee.
Advantages of pension funds
Employer contributions: In most plans, the employer contributes — that's extra money working for your retirement.
Guaranteed Income (GI): A defined benefit plan offers a predictable source of retirement income, regardless of market conditions.
Avantages fiscaux: Contributions reduce your pension adjustment, and investments grow tax-free within the plan.
Leaving a job with a pension fund
When you leave your job, several options are available to you depending on the type of plan and the jurisdiction:
Leave the funds in the plan: You can sometimes keep your funds in the employer's plan and receive a pension in retirement.
Transfer to a LIRA or locked-in RRSP: You can transfer the value of your rights into a LIRA (provincial plan) or an RRSP (federal plan) to manage the investments yourself.
Lump sum : In certain limited cases, a lump sum payment is possible, but it will be taxable and will negate the benefits of the asset being held in escrow.
Important advice
Transferring a pension fund to a LIRA or RRSP is a significant decision with long-term implications. It is essential to consult a financial advisor. Financial Advisor to evaluate your options and make the most advantageous choice for your situation.
Tax
Funds in a LIRA, RRSP, or pension fund grow tax-free. Taxation only occurs upon withdrawals—benefits received from a LIF or pension fund are considered taxable income and are added to your annual income.
To optimize your tax burden in retirement, it is important to plan your sources of income in coordination with your other accounts: RRSP/RRIF, TFSA and government benefits.
Everything you need to know about LIRAs, RRSPs and pension funds
A Locked-In Retirement Account (LIRA) is an account designed to receive funds transferred from a provincially registered pension plan when changing jobs. The funds are locked in until retirement.
The LIRA receives funds from a provincially regulated pension plan, while the RRSP receives those from a federal plan (transportation, telecommunications, banking, federal public service).
Generally no, the funds are locked in. Exceptions exist: reduced life expectancy, serious financial difficulties, small balance, or non-residence in Canada. The rules vary by province.
Upon retirement, the LIRA is converted into a Life Income Fund (LIF) which pays periodic withdrawals subject to regulated annual minimums and maximums.
Yes, in some cases. The federal RRSP allows you to release up to 50% of the funds to transfer them into an RRSP or RRIF, offering more flexible access to your savings.
In a defined benefit plan, the pension is calculated based on salary and years of service. In a defined contribution plan, it depends on contributions paid and returns earned.
You can usually leave the funds in the plan, transfer them to a LIRA or RRSP depending on the jurisdiction, or in some cases receive a lump sum (taxable).
The same options as other registered accounts: mutual funds, segregated funds, GICs, stocks, bonds and other eligible financial instruments.
Yes, in most provinces, funds held in a LIRA are protected from creditors in the event of bankruptcy or insolvency.
Withdrawals from a LIF (or pension fund benefits) are taxable as ordinary income. They are added to your annual income and taxed at your marginal tax rate.
The assets are transferred to the designated beneficiary or estate, according to your designation and applicable provincial or federal laws.
The age depends on the pension plan. The standard retirement age is often 65, but some plans allow for early retirement as early as 55. Reductions may apply for early retirement.
Some defined benefit plans include inflation adjustments (indexation). Defined contribution plans generally do not offer this protection—returns depend on investments.
Optimize your retirement transition
Whether you are leaving a job, approaching retirement, or simply want to better understand your options, our advisors can assist you with the transfer and management of your assets of retirement.
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