Dear Expert:
About two years ago I was laid off from a job that used to bring me a six-figure income. Upon leaving, $25,000 of my pension benefit was rolled over to a locked-in RRSP. Since that time I have been forced to cash in every available amount of money to pay debts. My annual income now is only about $20,000, although I am trying to find work that will increase my income. I have been told I cannot access this $25,000 until I reach age 65. If I could get access to this money, it would allow me to wipe out my remaining credit card debts. I do not have enough equity in my home to borrow, and have no access to other savings. Is there anything I can do to free up that $25,000?
Expert Opinion:
Being unemployed and having $25,000 in a locked-in RRSP account and no access to this money is a tough situation. However, you may indeed be allowed some access to the money in this account prior to age 65, depending on the terms of the pension legislation in your province of residence, and on the terms of the pension plan from which this money originated.
You might want to request that the trustee of your RRSP provide you with a copy of the lock-in agreement you signed when you set up the plan. In many cases, locked-in money is accessible at age 55. However, access at that age may be limited to converting the money into an annuity or a form of locked-in RRIF that can only make fairly small payments to you over a long period of time. And this might not provide much relief to your current problem. You might be interested in knowing that at least one province has taken steps to establish what is called a "prescribed RRIF." In Saskatchewan, new legislation allows residents of that province to completely withdraw funds from locked-in plans after a certain age. For example, prescribed RRIFs are available as of April 1, 2002, following amendments to Saskatchewan's Pension Benefits Regulations. This new option replaces the life income fund (LIF) and life retirement income fund (LRIF) options. The prescribed RRIF has no maximum annual withdrawal (although there is a minimum annual withdrawal), and the plan-holder can withdraw as much as he or she wants as a lump sum. This new legislation may have set a precedent for other provinces. In the meantime, you should understand that a locked-in RRSP is designed to be used only to fund retirement. The rules governing these plans are designed to replicate the structure of restricted access that would be found in an employer-sponsored pension plan. Generally, if you had a credit card debt and wanted to use money from your pension plan to pay this off, your request would be denied. You'd receive a similar response from the trustee of a locked-in RRSP. Do you have a question?All Ask the Expert questions are read and considered. Unfortunately we can't provide individual responses or respond to every question. Please note that questions about specific securities cannot be considered. Click here to Ask the Expert.
To find out how much an RRSP contribution may save you, try Morningstar's RRSP Calculator
No statement in this article should be construed as a recommendation to buy or sell securities or to provide investment advice or individual financial planning. Morningstar Canada does not provide specific portfolio advice and recommends the use of a qualified financial planner when appropriate.
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