Responsibilities | Pension Plans
Exceptions to the Locking-In Requirement
for Locked-in RRSPs and LIFs

The locking-in rules of the PBSA do not apply to locked-in RRSPs and LIFs containing pension money transferred out of a pension plan prior to 1993, or pension money transferred out after 1992 if it relates to service before 1993. The rules under which money is locked-in under these types of situations are determined by the rules of the pension plan from which the money was originally transferred.

Similarly, the locking-in rules of the PBSA do not apply to locked-in RRSPs and LIFs containing pension money if the money was transferred out of a pension plan as a result of a person terminating employment while working in another province. The provisions of the PBSA and Regulation governing RRSPs and LIFs apply only to persons who terminated employment in British Columbia. The determination of which province’s pension laws apply to locked-in pension money is determined by which province the person was working in when the person terminated employment rather than by the location of the institution holding the money, the person’s subsequent place of residence, or where the pension plan is registered (unless federally registered).

Similarly, the locking-in rules of the PBSA do not apply to locked-in RRSPs and LIFs containing pension money if the money came from a pension plan covering federal public sector employees, or a plan covering private sector employees working in federally regulated industries or jurisdictions, and registered with O.S.F.I..

If, however, the pension money is under British Columbia jurisdiction, it must be administered according to the provisions of the PBSA. The PBSA takes the approach that 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.

Locked-in RRSPs and LIFs containing pension benefits under British Columbia jurisdiction may be relieved from the locking-in requirement only under the following four specialized circumstances. The PBSA does not grant the Superintendent of Pensions any special powers to override the legislation. There is no provision for unlocking due to financial hardship.

1. Small Locked-in RRSPs and LIFs

Locked-in RRSPs and LIFs are permitted to be unlocked if the total value of the locked-in RRSP or LIF does not exceed a threshold amount. For 2008, the threshold amount is  $8,980. This is a relatively new provision, which came into effect on April 1, 2004. Technically, an RRSP or LIF must have a total value not exceeding 20% of the Year's Maximum Pensionable Earnings ("Y.M.P.E.") under the Canada Pension Plan in order to qualify. The Y.M.P.E. normally increases slightly each year. For 2008, 20% of the Y.M.P.E. amounts to $8,980. This means that during 2008, a locked-in RRSP or LIF can be unlocked if the total value of the account is not greater than $8,980.

The test is to be applied on an individual RRSP and LIF basis. There is no requirement to take into account any other locked-in pension assets a person may have. An RRSP or LIF containing more than $8,980 is not allowed to be split into smaller accounts in order to qualify for unlocking. A financial institution that splits a locked-in RRSP or LIF into portions any smaller than $17,960 is in breach of the Pension Benefits Standards Regulation. It is permissible to subdivide a locked-in RRSP or LIF into portions of $17,960 or greater.

There is no age requirement for this provision. There are no prescribed forms required for this provision. This is a separate exception from the age 65 exception. Money that qualifies for unlocking can be paid out in cash or be transferred to another tax shelter. The actual regulatory provisions related to this exception are contained in sections 29 (9.2), (9.3) and 30 (10.2) and (10.3) of the Pension Benefits Standards Regulation.

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 locked-in RRSP, LIF and defined contribution pension plan 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. = $17,960 in 2008).

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 financial institution or pension plan. 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 financial institution and pension plan.

3. Permanent Departure From Canada

The PBSA allows a RRSP, or LIF issuing institution 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. 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 financial institution. The person must also attach to the completed Form 6, written evidence that the Canada Revenue Agency has determined the person to be a non-resident of Canada for tax purposes. 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 financial institution.

4. Commutation for Shortened Life Expectancy

The PBSA allows a RRSP or LIF contract to contain a provision allowing for the withdrawal as a lump sum, of a person's pension benefit due to shortened life expectancy. In order to commute a pension entitlement under this provision a physician must certify that due to a physical disability the life expectancy of the owner is likely to be shortened considerably. 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 financial institution.