Responsibilities | Pension Plans
Information for Pension Plan Members

Exceptions to the Locking-In Requirement for Pension Plans
A member of a pension plan who becomes vested acquires the entitlement to receive a pension. Pension payments can begin once the person reaches retirement age . In order to protect the financial security of pension plan members and their spouses, vested pension entitlements are required to be locked-in .

Upon a termination of employment, some members are not eligible to immediately start a pension. Some people who have acquired a vested pension entitlement, but are still years away from being able to start their pension, want to be able to transfer their pension entitlement out of the plan and manage the pension entitlement themselves. The PBSA entitles members to certain termination options to enable members the opportunity for greater participation in managing their own retirement income security. The money that is transferred out of a pension plan, however, represents a pension entitlement and is required to remain locked-in .

Upon a marriage breakdown pension entitlements are often divided between the separating spouses. Vested, locked-in pension benefits transferred from one spouse to another are required to remain locked-in .

The exceptions to locking-in described below apply to pension benefits in pension plans. Similar information covering the exceptions available for unlocking RRSPs and LIFs is provided elsewhere on this site.

Locked-in pension benefits in pension plans may be relieved from the locking-in requirement only under the following four specialized circumstances .

1. Commutation of Small Vested Benefits

Some people who terminate employment, even though vested, may have acquired only a small pension entitlement. The PBSA requires all pension plans to allow terminating members the option for commutation of small vested benefits .

2. Age 65 and Small Total Entitlement

The PBSA entitles a person age 65 or older to unlock his or her pension entitlements if the sum of all that person's entitlements in every defined contribution pension plan, locked-in RRSP and LIF under British Columbia jurisdiction is less than 40 % of the Year's Maximum Pensionable Earnings ("Y.M.P.E.") under the Canada Pension Plan (40% of Y.M.P.E. = $16 440 in 2005).

A person who qualifies under this provision may transfer the money to a regular (i.e. unlocked) RRSP or receive it as a cash lump sum. Note, however, that any lump sums withdrawn from a pension plan are fully taxable as income for the year in which they are withdrawn.

In order to make a transfer or receive a lump sum under this provision the person must complete a Form 5, "Declaration of Commutable Amount" and file a copy of it with each relevant pension plan and financial institution. If the person has a spouse, the transfer or receipt of lump sum can only be completed if the spouse waives entitlements through the completion of Form 2, "Spouse's Waiver of Entitlements Under a Pension Plan, an RRSP, a Life Annuity or a LIF Contract", in the proper manner, and a copy is filed with each relevant pension plan and financial institution.

3. Permanent Departure From Canada

The PBSA allows a pension plan to commute a person's pension entitlement, and pay it out as an unlocked cash lump sum if the person has permanently moved away from Canada. (There is a similar exception for locked-in RRSPs and LIFs.) In order to qualify, the person must have been absent from Canada for 2 or more years, and have become a non-resident of Canada as determined for the purposes of the Income Tax Act (Canada). Information on what C.R.A. uses as criteria for a determination that a person is a non-resident is contained in NR73 - Determination of Residency Status (Leaving Canada), and C.R.A.'s other information on residency status.

In order to commute a pension entitlement under this provision, the person must complete a Form 6, "Certificate of Non-Residency" and file a copy of it with each relevant pension plan and financial institution. If the person has a spouse, the commutation can only be completed if the spouse waives entitlements through the completion of Form 2, in the proper manner, and a copy is filed with each relevant pension plan and financial institution.

4. Commutation for Shortened Life Expectancy

The PBSA allows a pension plan to contain a provision allowing for the commutation of a person's pension benefit due to shortened life expectancy. (There is a similar exception for locked-in RRSPs and LIFs.) In order to commute a pension entitlement under this provision a medical practitioner must certify that the person has a physical disability that is likely to considerably shorten the person’s life expectancy. If the person has a spouse, the commutation can only be completed if the spouse waives entitlements through the completion of Form 2, in the proper manner, and a copy is filed with the relevant pension plan or financial institution.

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