The Pension You Left Behind: Locked-In Accounts, and the Rules That Follow the Money

Most people who have changed jobs a few times are carrying one of these and have only a vague idea what it is. It arrived as a form on the way out of a job, at a moment when nobody was thinking about retirement, and it has been sitting at an institution ever since with a name made of initials. It is the pension you left behind, converted into an account you own but cannot freely use, and it behaves differently from every other account in a household. You cannot add to it. You cannot take money out of it when you like. And the rules that decide what you can do come from a source most people never think to check: not the institution holding it, not the province you live in now, but the jurisdiction the original pension plan was registered under, which may be a province you left twenty years ago. This article explains what these accounts are, what governs them, how the income eventually starts, and the circumstances in which the lock comes off.

Where it came from, and why it is locked

When you leave an employer with a registered pension plan and you are entitled to a benefit, you generally have a choice. You can leave the benefit in the plan and receive a pension from it later, or you can transfer its value out. If you transfer it out, the money does not become ordinary savings. It moves into a locked-in account, and it stays subject to pension rules.

The lock has a purpose that is easy to resent and hard to argue with. Pension legislation exists to make sure money set aside for retirement is actually there in retirement, and that intention does not stop applying because the employment ended. So the money is preserved for retirement income rather than made available for anything else.

That produces an account with unusual properties. It grows, it is yours, it can be invested as you choose within the usual registered rules, and it can be transferred between institutions. But you cannot contribute to it, and you cannot withdraw from it except through the income vehicle described below or through one of the specific unlocking grounds.

Which rules apply, which is the question that resolves everything

This is the single most useful thing on this page. The rules governing a locked-in account come from the pension legislation of the jurisdiction the original plan was registered under. Not the province you live in. Not the province the institution is in. The jurisdiction of the plan.

A person who worked for a federally regulated employer, in banking, telecommunications, interprovincial transport or a similar sector, holds an account under federal pension rules no matter where they live. A person who worked in one province and retired to another holds an account under the rules of the province they worked in. A person who has changed jobs across provinces can hold two locked-in accounts governed by two different sets of rules at the same institution, and the two do not behave the same way.

That explains most of the contradictory information people encounter. An article, a neighbour and a call centre can each be describing a different jurisdiction accurately. The question to ask, and it is answerable, is which jurisdiction governs this specific account. The institution holding it knows, it is recorded in the account documentation, and everything else follows from the answer.

The two stages, and the names they carry

These accounts come in two forms and the names are the main source of confusion, because there are several for each and they vary by jurisdiction.

The holding stage accumulates and does not pay out. It is called a locked-in retirement account or a locked-in RRSP in most of the country, and in Quebec a compte de retraite immobilisé, the CRI. Its job is to hold and grow the money until income is wanted.

The income stage pays out on a schedule. It is called a life income fund in most of the country and, in Quebec, a fonds de revenu viager, the FRV. Some jurisdictions have or have had additional variants with their own names and rules. The transfer from the holding stage to the income stage is a form, not a sale, and the investments can generally move across as they are.

The age at which the income stage can begin, and the age by which the holding stage must be converted, are set by the governing jurisdiction and by the tax rules that apply to every registered plan. Both are worth confirming for your own account rather than assumed from a general description.

The maximum, which is what makes these accounts different

An ordinary registered retirement income fund has a minimum withdrawal and no maximum: take at least the required amount, and take more if you want it. The income stage of a locked-in account usually has both a minimum and a maximum.

The maximum is the whole point of the lock at this stage. It is calculated under the governing jurisdiction’s formula, it changes with age and with the account value, and its purpose is to prevent the money being consumed early and leaving nothing for a long retirement. Households encountering it for the first time often experience it as an obstacle, and it is doing exactly what the legislation intends.

The practical consequence for planning is that a locked-in account is not a reservoir you can draw on for an unexpected expense. It produces a bounded stream of income. A household that has assumed otherwise, and has planned to meet a large cost from this account, needs to know before the cost arrives rather than after.

When the lock comes off

Every jurisdiction provides some grounds for unlocking, and the grounds differ, as do the thresholds and the process. What follows is the shape of what usually exists, and every one of them must be confirmed against the governing jurisdiction rather than assumed.

A small balance provision is the most common: where the account is below a stated size, often expressed in relation to a pension figure that changes each year, it may be unlocked in full. Age is usually part of that test.

Shortened life expectancy is provided for in most jurisdictions, with medical certification. Non residency for a stated period is provided for in many. Financial hardship unlocking exists in some jurisdictions and not in others, with defined categories and an application process. And several jurisdictions permit a one time partial unlocking at or after a stated age, usually as a percentage of the amount transferred into the income stage, exercisable once.

That last one is worth naming clearly, because it is a right that exists, is exercisable once, and is usually available only at the moment of the transfer from the holding stage to the income stage. A person who transfers without asking about it may have passed the only opportunity to use it.

What to do with the one you already have

Find it first. A meaningful number of people have a locked-in account they have lost track of, at an institution they no longer deal with, from a job they left a long time ago. Old statements, the former employer’s pension administrator, and the unclaimed property registries in the relevant province are the usual routes.

Then establish four facts and write them down. Which jurisdiction governs it. What the current value is. At what age income can begin, and by what age the conversion must happen. And whether any one time unlocking provision applies, and at what point it must be exercised.

Then decide whether it belongs in the plan differently than it currently sits. Two locked-in accounts under the same jurisdiction can often be combined, which reduces administration. Accounts under different jurisdictions cannot be mixed. And the timing of the conversion interacts with everything else described in this silo: the public pensions, the recovery tax, and the minimum withdrawals from other registered accounts. That interaction is the reason it belongs in a conversation with a qualified tax professional rather than being handled as a form.

The document that actually governs the account

The account agreement signed at the institution is not the whole contract. Attached to it is an addendum, sometimes called an endorsement or a schedule, which imports the pension legislation of the governing jurisdiction into the account and overrides anything in the main agreement that conflicts with it.

That addendum is the operative document, and it answers most of the questions people telephone about. It names the jurisdiction. It states what the account may and may not do, the ages that matter, the spousal consents required, and the unlocking provisions available on this account rather than in general. It is usually filed once and never read.

Ask the institution for a copy. Where two locked in accounts sit at the same institution under different jurisdictions there are two addenda, and reading them side by side is the fastest way to see that the accounts are not interchangeable.

A practical consequence follows. When an account moves to another institution the addendum travels with it, and the receiving institution has to be able to administer that jurisdiction. A transfer that stalls for weeks has often stalled on exactly this.

What happens when the holder dies

These accounts do not follow the beneficiary rules people assume they follow, and the assumption is the whole of the problem.

Pension legislation generally gives a surviving spouse or common law partner a prior claim to the account, ahead of a named beneficiary, because the money came out of a pension and pension law is built around the couple rather than around the account holder alone. A designation made in favour of an adult child twenty years ago may not produce the result the form appears to promise.

Where the governing jurisdiction permits it, that priority can usually be waived by the spouse in a prescribed form, completed and filed rather than agreed in conversation. The definitions of spouse and of a common law relationship are set by that jurisdiction and not by the institution.

The tax treatment then follows the registered rules, with the transfers available to a spouse or common law partner and, in defined circumstances, to a financially dependent child. Confirm the designation and the tax result with the institution and a qualified tax professional, and where a will or a marriage contract is involved, with a lawyer or notary.

Frequently Asked Questions

Continue Learning

Read Taking the Pension or Taking the Commuted Value for the decision that creates one of these accounts, RRIF Minimum Withdrawals for the ordinary account this one is often confused with, and The Old Age Security Recovery Tax for what the income feeds into. The Wealth Creation guide sets out the whole picture.