All About LIRA And Financial Hardship Unlocking

Many professionals don’t work for single company until retirement. In fact, most employees feel the need to change their job every few years to assist with career development and to meet their personal needs.

During this time, it’s typical to accumulate a significant sum of pension money. This money can help you maintain financial stability after retirement.

You might choose to:

• Leave money in your pension plan when you leave your job in order to collect a prorated amount following retirement
• Take part or all of the amount in cash
• Transfer the commuted value (for a defined benefit plan) or full value (for a defined contribution plan) into a locked-in retirement account (LIRA)

But what would happen to these funds in the event of personal bankruptcy filing?

Fortunately, pension funds and locked-in-retirement accounts are protected from creditors in the event of personal bankruptcy, as per the Pension Benefits Act. Moreover, Life Income Funds cannot be seized in bankruptcy.

However, there are some exceptions, such as a former spouse pursuing claims for support arrears or the division of pension assets, under the Family Law Act.

So, can you access LIRA to overcome some financial hardship?

The objective of LIRA is to prevent you from accessing your retirement savings until you reach a minimum age that is set by your province of residency. In Ontario, you can begin receiving income from your pension at the age of 55 by converting it to a Locked-in Registered Income Fund (LRIF) or a Life Income Fund (LIF). You cannot withdraw the money any other way.

It can be difficult to face financial difficulties without being able to access your pension money. Fortunately, there are a few cases when you can apply to unlock LIRA, including:

• If your expected annual net income is less than 75% of the Yearly Maximum Pensionable Earnings (YMPE), which was $40,200 in 2015. You can withdraw a maximum of 50% of the YMPE.
• If you, a spouse, or a dependent incurs high medical/disability related costs that exceed 20% of the YMPE. You can access 50% of the YMPE.
• If you or your partner are about to be evicted from your principal residence due to unpaid rent
• If you need money to pay rent for the first and last month of a lease
• If you need money to renovate your home to accommodate your disability needs
• If you risk mortgage foreclosure on your primary residence

To qualify for the funds, you need to file an application and provide the relevant documents to support your case. However, you don’t need to provide information about other assets. You can only withdraw the maximum amount once a year, or partial amounts in 30-day intervals, and all funds are taxable.

In the event of a financial hardship, you should consult a credit counsellor to discuss your options so you won’t need to tap into your retirement fund.