Combining two Locked-In Retirement Account (LIRA) accounts is generally restricted and depends heavily on the specific pension legislation governing each account.
Jurisdictional Restrictions on LIRA Combination
A significant limitation arises when LIRAs are governed by different pension jurisdictions. For instance, an owner of an Ontario LIRA cannot combine the money in it with another LIRA or any locked-in account that falls under the pension laws of a different jurisdiction. This prohibition exists because LIRAs are designed to hold pension funds and are subject to the specific rules and regulations of the pension act under which they were originally established, whether federal or provincial. Each jurisdiction has unique provisions regarding how and when locked-in funds can be accessed or transferred, making inter-jurisdictional consolidation complex or often impossible.
Combining LIRAs Within the Same Jurisdiction
While combining LIRAs from different jurisdictions is generally not permitted, the possibility of consolidating LIRA funds within the same jurisdiction is often misunderstood. Rather than "combining" two distinct LIRA accounts into a single existing one, it typically involves transferring the assets from one LIRA into another LIRA (or a Locked-In Retirement Income Fund - LIF) held at the same or a different financial institution, provided both accounts are governed by the same pension legislation. This process is essentially a direct transfer of locked-in funds, maintaining their locked-in status and adherence to the applicable provincial or federal pension laws. This allows for consolidation of investments under one provider, potentially simplifying management and reducing fees.
Why Restrictions Exist
The primary reason for these restrictions is to protect pension entitlements. LIRAs are 'locked in' to ensure funds are preserved for retirement income. Each province and the federal government has its own pension legislation, which dictates:
- Eligibility for unlocking: When and how funds can be withdrawn early (e.g., financial hardship, non-residency).
- Permitted investments: What types of assets can be held within the LIRA.
- Spousal rights: How funds are treated in case of separation or divorce.
- Beneficiary designations: Rules around passing on funds after death.
Attempting to combine accounts across different jurisdictions could lead to conflicts in these regulations, undermining the protective nature of the locked-in funds.
Key Considerations for LIRA Management
If you hold multiple LIRAs or are considering their management, keep the following in mind:
- Identify Governing Jurisdiction: Determine whether each LIRA is governed by federal pension law or a specific provincial pension act (e.g., Ontario, Alberta, British Columbia). This information is crucial for understanding the rules that apply.
- Consult Your Financial Institution: Speak with your bank or investment advisor. They can provide specific guidance based on the jurisdiction of your LIRA accounts and help facilitate eligible transfers.
- Understand Transfer Options: While direct "combining" is rare, transferring funds from one LIRA to another within the same jurisdiction is a common practice for consolidation.
- Unlocking Provisions Are Separate: Do not confuse the ability to combine or transfer LIRAs with the specific, limited circumstances under which LIRA funds can be "unlocked" (i.e., converted to an RRSP or cash out) before retirement. These are distinct processes with strict criteria.
For more general information on Locked-In Retirement Accounts, you can refer to resources from reputable financial consumer agencies, such as the Financial Consumer Agency of Canada.
Understanding the specific rules tied to each LIRA's governing legislation is essential for proper management and planning for your retirement.
