Unlocking the Secrets of Locked-In RSPs

Last Updated:
January 8, 2020

If you have terminated employment in the past and were a member of your employer’s pension plan, one of the options you likely had upon leaving was to move an amount from the pension plan to a “locked-in Retirement Savings Plan (RSP)”. In the case of a Defined Contribution (DC) pension plan, it would be the full amount of the plan, while if you had a Defined Benefit (DB) plan, it would be an amount known as the Prescribed Amount, the calculation of which is beyond the scope of this article.

In many ways, the money in a locked-in RSP operates the same as a “normal” RSP: you have the same investment choices, and you must convert the plan to a retirement income option by the end of the year you turn 71. The main difference is that money in a locked-in RSP continues to be regulated by the pension legislation of either the Province in which the employer’s head office was located or – in the case of federally regulated industries – by the federal Pension Benefits Standards Act (PBSA).

The main purpose of pension legislation is to ensure that a lifetime pension is paid to the member. This mostly explains the unique aspects of locked-in RSPs: limitations both on the age at which income can begin to be drawn (55 for most jurisdictions) as well as maximums on the amount of money that can be paid out when income is drawn. By contrast, “regular” RSP money is subject only to minimum payments when paid out through a Retirement Income Fund (RIF).

When the time comes to generate income from locked-in funds, you have the same basic options: retaining an investment portfolio and generating income from the investments, purchasing a life annuity, or some combination of the two. Where investments are being used to generate income, locked in money is paid out through a Life Income Fund (LIF). With life annuities, locked in money is paid out through what is called a unisex annuity: an annuity that pays the same amount to males and females of the same age – since pension legislation (since 1986, at any rate) does not allow for discrimination on the basis of sex. By contrast, ordinary annuities pay less to females as opposed to males of the same age owing to the longer life expectancy of females.  

There are ways that some or all of your locked-in money can be unlocked. For example, if you are 55 or older you would have the following options – at least with pensions regulated under Ontario or the Federal PBSA:

Small balance unlocking: If the balance in your locked-in plans governed by a given jurisdiction amount to less than ½ of the Year’s Maximum Pensionable Earnings (YMPE) – currently $57,400, then the full balance can be unlocked and moved into your regular RSP.

One time 50% unlocking: At the time a LIF is being set up, you can unlock up to 50% of the value, transferring the unlocked portion to your regular RSP or RIF plan.

Apart from the two situations outlined above, there may also be provisions for unlocking in situations of medical necessity or low income. Federal legislation provides rules and limits for unlocking in both situations, while Ontario makes provisions for financial hardship as well as shortened life expectancy.

You worked hard to earn your pension, and you want to get full value for what you have accumulated. Talk to your Scrivens advisor and unlock the strategy that makes your retirement work for you.