Accumulation vs. decumulation
Most retirement planning focuses on accumulation: contributing, investing, and growing savings. Decumulation is the other half: turning those savings into a reliable income that lasts. For employees, the transition often happens with little guidance, and the decisions made in the first few years of retirement can have a large impact on how long their money lasts.
What locked-in means
Money in a registered pension plan, including a DC pension or the LINK MEPP, is locked in. It can only be used to provide retirement income, not withdrawn as cash. When an employee leaves their employer before retirement, locked-in funds usually move to a locked-in retirement account (LIRA), sometimes called a locked-in RRSP, or to a new employer's pension plan. Group RRSP and DPSP money is not locked in by pension law, although plan rules may restrict withdrawals while employed.
Rules depend on where the pension was earned
Locking-in rules follow the jurisdiction of the original pension plan, not where the employee lives today. For Alberta plans, LIRA funds can move to a life income fund (LIF) from age 50, and at that point up to 50% can be unlocked in a one-time transfer to an RRSP or RRIF. For Ontario plans, a one-time unlocking of up to 50% is available from age 55, within 60 days of transferring funds into a LIF. For federally regulated plans, a one-time 50% unlocking is available from age 55 on transfer to a restricted LIF. Most jurisdictions also allow unlocking in specific cases such as small balances, shortened life expectancy, or non-residency, and some allow it for financial hardship.
Converting an RRSP to a RRIF
An RRSP must be converted by the end of the year the holder turns 71. Most people convert to a registered retirement income fund (RRIF), which keeps the money invested and tax-sheltered while paying out income. Once in a RRIF, the holder must withdraw a minimum amount each year, based on a CRA formula tied to their age (or their spouse's age, if younger). Withdrawals are taxable income, and amounts above the minimum have tax withheld at source. The alternative is to use RRSP savings to buy an annuity, which pays a guaranteed income for life or a set period.
Converting locked-in money to retirement income
Locked-in funds follow similar rules with an added maximum. A LIRA must also be converted by the end of the year the holder turns 71, typically to a LIF or a life annuity. A LIF works like a RRIF, with the same annual minimum withdrawal, but also sets a maximum each year so that the savings last. Some pension plans also allow members to draw income directly from the plan through variable benefits.
Decisions employees face at retirement
The key questions are how much income they need, when to start CPP and OAS, whether to buy an annuity for part of their savings to cover essential expenses, how to invest during retirement to balance growth against the risk of a market downturn early on, and in what order to draw from RRIFs, LIFs, TFSAs, and non-registered savings. Pension income from a RRIF or LIF can generally be split with a spouse from age 65, which can lower the household tax bill.
How LINK supports members through retirement
A dignified retirement depends on more than a healthy balance on the day someone stops working. LINK is adding RIF and LIRA accounts to the platform, so members will be able to move from saving to drawing retirement income without leaving the platform or their portfolio behind. Plan sponsors will be able to offer a complete path from first contribution to retirement income, all in one place.