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How to Transfer a Work Pension to a LIRA

how to transfer work pension to lira

When my wife recently left her career in health care, there was a bit more administrative work than expected.  One of these administrative items was to decide what to do with her accrued pension with her work place.  Technically, there are two pensions that we have to deal with.  The first was a “defined benefit” pension that was accumulated while working full time at the hospital.  The second “defined contribution” pension started when she switched from full time to part time hours after our first child was born.

Pensions Explained

At a high level, a defined benefit pension is where an employee  contributes to a plan, and the employer (typically government) guarantees a payout during retirement age based on how many years you’ve worked, and your income during that time (typically an average of your last five years salary).  These are often called gold-plated pensions as all of the market risk is on the employer.  As you can imagine, these types of plans are very costly to the employer and government is likely the only employer left offering this benefit.

Most companies (and now even some government entities) offer defined contribution plans.  In this type of pension, you contribute a certain allowable percentage of your salary and the employer will match that amount.  The pension in this case is very similar to an RRSP where you can pick and choose your investments (how to choose mutual funds within your work pension).  In this arrangement, the employer has de-risked itself as they do not provide any guaranteed income in retirement.  Basically, the employee lets the account grow over the years, and withdraw from the account to support expenses during retirement.

If you’re interested in more detail, check out my article on the differences between the two pensions.  For now, I’m going to focus the remainder of this article on the defined contribution plan (DCP) – just because I recently completed this transfer and will be working on the defined benefit pension early in the new year.

Leave or Stay – Our Pension Options

Once the resignation from the hospital was made official, we received a package on our options on what to do with the DCP.  We were basically given two options:

1. Leave the account with the pension company Great West Life (GWO), and let them switch it to one of their internal portfolios.

With this option, GWO offered to keep the funds (about $20k) within their portfolios and only charge us 2% –  with reduced fees as the amount managed grows. For those of you who follow this blog, you will know that 2% is way too much for portfolio management.

Even with the most expensive mutual fund providers, you can usually pick their indexed mutual fund products in the 1% range. For me though, even 1% is not low enough. Reducing your MER from 2% to a simple ETF portfolio with a MER of 0.30% can result in a 60% difference in portfolio size over 30 years.  If you had the choice, would you pick $1M over $600k?

2. Transfer the assets into our own LIRA

As you probably guessed, as most of our assets are already self-directed, we opted for the second choice and transferred the money from GWO to a locked-in registered account (LIRA).

What is a LIRA?  It’s essentially an RRSP that allow assets to grow tax free, but you have to wait until a certain age before you can withdraw from the account.  The minimum withdrawal age depends on the province that the LIRA is registered, for NL, it’s 55 (here’s a resource for other provinces).  There are other special circumstances that allow access to a LIRA including financial hardship, spousal support, a life threatening health issue, or becoming a non-resident of Canada.

Process of Transferring a Pension to a LIRA

  1. Setup a LIRA (if you don’t have one already) – There was one issue with choosing to transfer assets to a LIRA, we didn’t have a LIRA setup!  Basically all major discount brokerages in Canada offer LIRA’s, but since my wife already had assets with Questrade, we decided to keep it all together and open a LIRA with Questrade (full review).  The process of opening a LIRA was relatively painless and allowed us to complete almost everything online (except one beneficiary form that had to be mailed in).
  2. Send Pension Company the Transfer Form – Once the LIRA was opened (it took us about a week in total), we filled in the information required in the transfer form provided by GWO. In addition to the transfer instructions, we needed to include  an “Addendum for Locked-In Retirement Accounts” which was provided by Questrade.
  3. Wait for the money to show up!  Upon sending the transfer instructions to GWO, the money showed up in the new LIRA about 7 business days later.  Much faster than I had expected.  So now we have another $20k to invest which will likely be indexed with ETFs like the rest of my wife’s portfolio.

Final Thoughts

So that was our relatively painless adventure of transferring a pension into a new LIRA.  One thing I should note is that not all employer DCP’s require that you transfer into a LIRA.  Some will allow you to transfer to an existing RRSP – best bet is to contact your provider for more details.

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FrugalTrader About the author: FrugalTrader is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 5 comments… add one }
  • Joel October 24, 2016, 2:51 pm

    Interested in what you do with the defined pension portion, keep it as an annuity or move it to a LIRA. My wife went through that a couple years ago with her job. Based on the numbers we transferred it to a LIRA because the transfer value was bassically inflated to what the dollar amount for the annuity would be worth when she turned 55 and was entitied to the annuity. Since she was only 32 had lots of time until then I looked at it as an opportunity to have it grow in ETFs for 20 years and be worth more at 55 then if she kept it within the plan.

  • Tyrone October 24, 2016, 6:03 pm

    I went through the same process when I retired early from my corporate job about 5 years ago. Same as you, I opted to transfer my DC plan to a LIRA. It was great to be able to invest in low cost ETFs at a lower cost than the funds of the previous pension provider and to have more choice. Not that I was tempted, but it’s also kind of a good thing that it was a LIRA and not an RRSP. A lot more difficult for one to withdraw funds from a LIRA compared to an RRSP. Suddenly having access to a large company payout at a fairly young age could certainly be tempting.

    On the flip side, I remember my pension provider having fewer options with higher management fees, but at least they were all well diversified. Once you take on the responsibility of taking over your own pension, make sure you invest your payout wisely. Remember some of those guys at Enron that had their whole pensions sitting in Enron stock….don’t do that.

  • Steve October 27, 2016, 1:36 am

    Thanks for the very good article.

    I believe in the third paragraph you mean that the employer has de-risked itself, not the employee.

    Steve

  • JZ November 19, 2016, 10:17 pm

    Hi FT,

    Do you know if IB offers this LIRA? Currently have RRSP with them and would be nice if can have LIRA with them too. I looked at their website and it looks like they only offer two registered accounts RRSP and TFSA.

    Thanks!

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