A locked-in retirement account (LIRA) is a Canadian retirement savings vehicle designed to hold pension funds that have been transferred out of a registered pension plan (RPP), usually when an individual leaves a job with a company-sponsored pension. Unlike regular RRSPs, funds in a LIRA are locked-in by law and cannot be withdrawn in cash before retirement, except in very limited circumstances.
LIRAs are individual accounts and are governed by provincial or federal pension legislation, depending on the original pension plan’s jurisdiction. The funds can be invested similarly to RRSPs and grow on a tax-deferred basis.
At retirement, a LIRA must be converted into a life income fund (LIF), locked-in retirement income fund (LRIF), or life annuity, depending on the applicable rules. Many jurisdictions, including Alberta and federally regulated pension plans, no longer offer the LRIF.
Key features of a LIRA
| Feature | Description |
|---|---|
| Holds pension funds | Created to receive funds from a defined benefit or defined contribution pension plan upon job termination |
| Locked-in status | Funds cannot be accessed as a lump sum withdrawal before retirement, except under rare exceptions |
| Individual ownership | Owned and controlled by the former plan member |
| Tax-deferred growth | Earnings accumulate tax-deferred until withdrawn |
| Conversion requirement | Must be converted to a LIF or life annuity (or an LRIF, where still offered) by the end of the year the holder turns 71 |
| Governed by pension law | Rules vary by province or federally, depending on the origin of the pension |
Important considerations
- Early withdrawals are only permitted in limited cases set by the applicable legislation, such as financial hardship, a low account balance, shortened life expectancy or non-residence in Canada, and in some jurisdictions a one-time partial unlocking.
- A LIRA cannot accept regular contributions, only locked-in pension transfers.
- The choice of conversion option (LIF, LRIF, or annuity) affects retirement income flexibility and longevity risk.