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Pension Hub of Canada

The Pension Hub
of Canada

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Canada has a complex and multifaceted pension landscape, with various pieces of legislation governing different types of pension plans at both the federal and provincial levels.

Below are some key aspects of Canadian pension legislation:

  1. Canada Pension Plan (CPP):

    • The Canada Pension Plan is a federal program that provides retirement, disability, and survivor benefits.

    • The CPP is governed by the Canada Pension Plan Act and administered by the Canada Pension Plan Investment Board (CPPIB).

  2. Old Age Security (OAS):

    • The Old Age Security program is another federal initiative that provides a basic pension to Canadians aged 65 and older.

    • The OAS Act outlines the provisions for this program.

  3. Employment Pension Plans:

    • Each province and territory in Canada has its own pension legislation that governs employment pension plans (i.e., employer-sponsored pension plans).

    • For example, in Ontario, the Pension Benefits Act (PBA) regulates employment pension plans. Other provinces and territories have similar acts.

  4. Registered Retirement Savings Plans (RRSPs):

    • RRSPs are a type of personal savings plan for Canadians, allowing them to save for retirement in a tax-advantaged way.

    • The Income Tax Act contains provisions related to RRSPs.

  5. Tax-Free Savings Accounts (TFSAs):

    • TFSAs are another personal savings option with certain tax advantages.

    • The Income Tax Act also includes provisions related to TFSAs.

  6. Supplementary Pension Plans:

    • In addition to employment pension plans, some provinces have legislation that covers other types of supplementary pension plans, such as individual pension plans (IPPs) or multi-employer pension plans (MEPPs).

  7. Pension Regulation Authorities:

    • Each province and territory has its own regulatory authority responsible for overseeing pension plans and ensuring compliance with applicable legislation.

    • For example, in Ontario, the Financial Services Regulatory Authority of Ontario (FSRA) plays a role in pension plan regulation.

It's important to note that pension legislation is subject to change, and updates may occur after my last data on January 2023.

Transferring your Pension Plan to LIRA

When an individual leaves employment where they have contributed to a pension plan, they may have the option to transfer the commuted value of their pension benefits to a Locked-In Retirement Account (LIRA). The process may vary by provincial jurisdiction and the specific rules outlined in the pension plan and applicable legislation. Here is a general overview of the steps involved:

  1. Determine Eligibility:

    • Check whether you are eligible to transfer your pension benefits to a LIRA. Eligibility criteria may be outlined in the pension plan documents and are subject to pension legislation.

  2. Commuted Value Calculation:

    • The commuted value represents the lump sum equivalent of the pension benefits you have accrued. The pension plan administrator calculates this value based on various factors, including your age, years of service, and other plan-specific considerations.

  3. Choose a Financial Institution:

    • Select a financial institution or investment provider where you want to establish the Locked-In Retirement Account (LIRA). This institution will hold and manage the transferred funds on the advice of your advisor.

  4. Complete Transfer Paperwork:

    • We work with both the pension plan administrator and the chosen financial institution to complete the necessary paperwork for the transfer. This may involve providing information about the receiving LIRA and authorizing the transfer.

  5. Direct Transfer to LIRA:

    • The pension plan administrator will transfer the commuted value of your pension directly to the LIRA. This transfer is typically done on a tax-deferred basis, meaning there are no immediate tax consequences.

  6. Investment Options:

    • Once the funds are in the LIRA, you can typically choose from a range of investment options based on your risk tolerance, financial goals, and retirement timeline.

  7. Locked-In Status:

    • Understand that funds in a LIRA are "locked-in," meaning there are restrictions on withdrawing the funds. Regulations stipulate when and how withdrawals can be made, generally to provide income in retirement.

  8. Monitoring and Management:

    • Your advisor will regularly monitor your LIRA, review your investment strategy, and stay informed about any changes in pension or retirement regulations that may affect your account. You should stay in touch with your advisor with regular meetings. (two per year)

It's crucial to consult with the pension plan administrator, a financial advisor, or legal professionals familiar with pension and retirement laws in your specific jurisdiction. They can provide guidance on the process, ensure compliance with applicable regulations, and help you make informed decisions based on your individual circumstances.

What is a LIRA

A Locked-In Retirement Account (LIRA) is a type of registered retirement savings account that holds locked-in pension funds. Funds in a LIRA are typically transferred from an employer-sponsored pension plan when an individual leaves their job, and they are subject to specific regulations and restrictions.

Key features of Canadian LIRAs include:

  1. Locking-In:

    • The term "locked-in" refers to the restrictions placed on the funds in a LIRA. The money is earmarked for retirement and cannot be withdrawn as a lump sum in most cases.

  2. Source of Funds:

    • LIRAs are often funded by transferring the commuted value of pension benefits from a pension plan when an individual leaves their employment. The commuted value represents the lump sum equivalent of the pension benefits earned.

  3. Investment Options:

    • LIRAs offer a range of investment options similar to those available in other registered retirement savings plans (RRSPs). Account holders can typically choose from various investment vehicles, such as mutual funds, stocks, bonds, and other approved investments.

  4. Withdrawal Restrictions:

    • Withdrawals from a LIRA are generally subject to specific rules and restrictions. The timing and conditions for withdrawals vary by jurisdiction, but typically, funds in a LIRA cannot be withdrawn before a certain age, often linked to the age at which one can start receiving a pension (e.g., 55 or 65).

  5. Income Options:

    • When reaching retirement age, individuals with a LIRA may have options for converting the funds into retirement income. This often involves purchasing a life annuity or transferring the funds to a Life Income Fund (LIF) or a similar vehicle.

  6. Regulatory Oversight:

    • LIRAs are regulated by provincial and territorial pension legislation, and the specific rules may vary by jurisdiction. Each province has its own regulatory body responsible for overseeing pension matters.

  7. Spousal Rights:

    • LIRAs typically have provisions to protect the rights of spouses or beneficiaries in the event of the account holder's death. Spousal consent may be required for certain transactions or withdrawals.

  8. Financial Institution:

    • LIRAs are held and managed by financial institutions, such as banks, credit unions, or investment firms. Individuals can choose the financial institution where they want to open their LIRA.

It's important for individuals with a LIRA to stay informed about the rules and regulations governing their account, especially as they approach retirement. Consulting with a financial advisor or a pension professional can provide personalized guidance based on individual circumstances and the specific regulations in the relevant province or territory.

Pension Hub of Canada is an information service provided by Orca Wealth and Insurance Services.  Independent financial advice since 1987.

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