Scotia Wealth Management Senior Wealth Advisor, Dave Lee, offers Total Wealth Planning in White Rock. To book an appointment, call 604.535.4743 or email

Scotia Wealth Management Senior Wealth Advisor, Dave Lee, offers Total Wealth Planning in White Rock. To book an appointment, call 604.535.4743 or email

The ABCs of investment accounts: Finding flexibility in locked-in retirement accounts

Last month, White Rock Senior Wealth Advisor Dave Lee shared some things to consider when converting a Registered Retirement Savings Plan (RRSP) into a Registered Retirement Income Fund (RRIF). What if you have other sources of retirement income?

“Some of my clients have a locked-in retirement account, left over from a previous job with a defined benefit pension. There’s a lot of fine print around unlocking them, but once I know the legislation details, I can suggest a strategy for when and how to move those dollars into a more flexible account,” Dave says.

What is a locked-in retirement account?

Some employers offer defined benefit pension plans, where employees are promised a set income when they retire. This is different from a defined contribution pension plan, where employees and employers contribute and invest funds for retirement.

“If you work for an employer with a defined benefit pension plan until you retire, you will have a stable income for as long as you’re alive. But if you leave that role before retirement, you usually have the option to receive the cash equivalent of the pension accrued.”

It’s a complicated calculation — actuaries must determine a dollar amount based on your years of service, how long a person of your age is likely to live, interest rate expectations and other factors. Once they settle on a dollar amount, you’ll receive a lump sum — which must be placed into a locked-in retirement account.

“It’s the government’s way of ensuring that the money is used to help pay for your whole retirement, and not just a splurge at the outset,” Dave says. “The trouble is many people have really small locked-in accounts — or even multiple locked-in accounts with a small balance in each. Investors often feel these small, restricted accounts complicate their retirement planning.”

Comparing RRSPs to locked-in retirement accounts

  • Tax: Both locked-in retirement accounts and RRSPs grow tax-deferred. Tax is collected when you withdraw money in retirement.
  • Contribution room: Unlike RRSPs, you are not allowed to contribute more funds to a locked-in account.
  • Withdrawal rules: Both RRSPs and locked-in accounts eventually have a minimum annual withdrawal requirement once you convert them to a RRIF or LIF in retirement, but locked-in accounts also have a maximum withdrawal amount. “It’s a really narrow band — there’s not a lot of flexibility between the minimum and maximum,” Dave says.

Unlocking retirement savings into a more flexible RRSP

“Pension legislation is provincial. Someone who changed employers frequently might have BC, Ontario and Newfoundland plans that all need to be held in different accounts, each with different rules on how and when you can access the money” Dave says. “That’s where someone like me comes in. I can dig into the rules for your account type and suggest ways to make those funds more useful.”

Most locked-in accounts allow small withdrawals after age 55. There are also rules for when and how much can be withdrawn as a lump sum, over and above the annual withdrawal amounts. In many cases, the account is too large initially to qualify for lump sum withdrawals or complete unlocking, but after a number of years of making maximum annual withdrawals, the account value will reach a threshold than enables full unlocking. This is something that Dave actively monitors for clients so that they know when they will be able to take greater control of their investments and combine the value of their former pension fund with their RRSP or RRIF account.

To discuss investments, life insurance, retirement planning, estate planning, and strategies that could help generate income and minimize taxes, make an appointment with Dave Lee in White Rock. Call 604.535.4743 or email, and follow him on Facebook, Twitter and LinkedIn for more financial insights.

ScotiaMcLeod, a division of Scotia Capital Inc.


Financial planningSeniors