April 17, 2020
Ontario’s Financial Services Regulatory Authority (FSRA) has posted information with respect to withdrawing from locked-in accounts as a result of financial hardship. Although the criteria have not changed under Ontario’s Pension Benefits Act (PBA), the information has recently been posted to remind those finding themselves in financial hardship amid the Covid-19 pandemic of the options that exist for unlocking their funds. Unfortunately, in Ontario the options are only available to individuals who have already transferred the commuted value of their pensions into a locked-in retirement account (LIRA) or a life income fund (LIF).
The PBA provides four categories of financial hardship under which you can unlock amounts held in a LIRA or LIF:
- medical expenses;
- arrears of rent or debt secured on a principle residence (such as a mortgage);
- first and last months’ rent, and
- low expected income.
Application to your Financial Institution
You can apply under one of the categories or under a combination of categories, however, you can only make one application for financial hardship withdrawal, for each category, under each account, once in a calendar year.
The only exception to the one application rule is under the medical expenses category, where you may apply each calendar year, for each account, for each individual who is suffering from an illness or physical disability if the individual is:
- the owner (i.e. the former pension plan member who has transferred the value of their pension entitlements out of their plan and into a LIRA or LIF);
- the owner’s spouse; or,
- a dependent of the owner or the owner’s spouse.
In order to apply, you must submit the appropriate FSRA form to your financial institution, with each category having its own form. The 2020 Financial Hardship Unlocking Forms are available at the following link: https://www.fsrao.ca/industry/pension-sector/pensions-forms#fhu
Factors to consider before applying
- Amounts withdrawn under the financial hardship criteria are taxable income and therefore the financial institution that you are withdrawing the funds from will withhold a percentage for federal income tax and remit that amount to the Canada Revenue Agency (CRA) and provide you with a tax slip. Depending on your income there may be further tax implications once you file your taxes.
- Depending on the type of account you hold, your financial institution may charge you withdrawal fees.
- Money held in locked-in accounts is protected from creditors, however, if it is withdrawn under the hardship rules the amounts are no longer protected. This means that if you have filed for bankruptcy protection, your withdrawal will be accessible to your creditors to pay off your debt.
For more information please visit FSRA’s website posting here: https://www.fsrao.ca/consumers/pensions/pension-unlocking-financial-hardship/withdrawing-locked-accounts-because-financial-hardship
Most other provinces and territories also provide for the ability to unlock locked-in pensions for various financial hardship reasons and have their own rules with respect to this. Individuals should check the applicable regulators website for more information:
- Federal: https://www.osfi-bsif.gc.ca/Eng/pp-rr/faq/Pages/ulfpp-lrsp.aspx
- British Columbia: https://www.bcfsa.ca/pdf/Pensions/SOP-007-FHU.pdf
- Alberta: https://open.alberta.ca/publications/financial-hardship-unlocking-faqs-general-program-and-process
- Saskatchewan: https://fcaa.gov.sk.ca/public/CKeditorUpload/Pensions/Bulletin_-_Unlocking_Pension_Money_(2019).pdf
- Manitoba: https://www.gov.mb.ca/finance/pension/news/index.html
- Quebec: https://www.rrq.gouv.qc.ca/en/retraite/cri_frv/Pages/remboursement.aspx
- New Brunswick: https://fcnb.ca/en/personal-finances/pensions-and-retirement/pension-transfers-and-withdrawals
- Nova Scotia: https://www.novascotia.ca/finance/en/home/pensions/faq.aspx#lockedin
Manitoba has just recently introduced legislation but these changes are not yet in force.
Newfoundland does not allow unlocking for financial hardship purposes at this time.
Pension and Benefits