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Hi
I'm hoping someone has an idea about my situation.

I worked for the public service for less than a year and was told I had to take all my commuted pension 15K + 6K. I am currently still not working and on EI. I assume this payout will affect that.
I have CRA approval to T1213 to have 6K of the Pension Fund directly transfer to an RRSP without withholding taxes.
EI says if the transfer was locked in my EI wouldn't be affected.

Why does the Pension Analyst say that am I not allowed to put this in a locked RRSP?

And if funds are considered in EI isn't it better to have taxes with-held now reducing the total income EI will be considering?

I don't have any other RRSP's at the moment and I'm in my early 50's with 2 young children (w/ disabilities). Ouch.
Thanks for any input.

Gil
 

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When you take your pension payout they should be able to transfer it to an LIRA for you (Locked-in Retirement Account) and I would expect that won't affect your EI. You should not need to pay any taxes on this either.

I wonder if the pension analyst is focusing on your use of the term RRSP? Try asking about an LIRA instead.
 

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Discussion Starter #3
Thank you SPUDD.
I'm not clear on the difference between the Locked In RRSP and a LIRA. It seems the Pension Fund and govt would want it locked in.
 

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You'll want to get specific advice for your situation. But from my time in the civil service, I remember that there was a 2-year period before your pension benefits "vested", or "locked-in". If you left before that 2-year date, instead of getting a small pension credit, you were instead given a "return of contributions" (RoC). Basically, all the money you (and your employer) paid in, plus its share of the accumulated earnings for that period. Presumably that is the $15K and $6K, although the amounts seem a bit large.

What may be happening is that it may not be possible to transfer the "return of contributions" or even part of it, to a LIRA, since it hasn't yet "locked in" as a pension. You are in effect paying the tax on the contributions and those earnings that has been deferred. You'll want to get your pension people to triple-check that they have to do a RoC, and can't somehow put move some or all of it into a LIRA. A LIRA is a "Locked In Retirement Account", which like the pension you can't get at until retirement, unlike an RRSP.

IF you get the RoC in cash, you could put it into an RRSP and get the tax credit to offset taxes payable, but I don't know if that still appears as "income" for EI purposes. Again, get advice from someone who actually knows what they are talking about... :)
 

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Much to the last comment that really doesn't say much, AFAIK..

If you were a member of a Registered Pension Plan (RPP), your employment was terminated, and your plan was fully vested, the proceeds of that RPP would be considered 'locked-in'. These locked-in funds can only be transferred into certain 'Locked-in Plans' which include Locked-in RSPs and Locked-in Retirement Income Options:
RIF:
The most common Retirement Income Option is a Retirement Income Fund (RIF)1. A RIF gives you the flexibility to determine the amount of income you withdraw each year from your retirement savings. The only requirement is that you receive a minimum annual amount, according to a predetermined schedule set by the federal government. You only pay tax on the money you withdraw from your plan each year.
A RIO (Retirement Investment Option) is also available for your Locked-in RSP (LRSP) or Locked-in Retirement Account (LIRA) in the form of a Life Income Fund (LIF), Locked-in Retirement Income Fund (LRIF) or Prescribed Retirement Income Fund (PRIF), depending on the governing legislation of the original pension plan.
LIRA (Locked In Retirement Account)

A Locked-In Retirement Account (LIRA), and the virtually identical Locked-in Retirement Savings Plan (LRSP), are Canadian investment accounts designed specifically to hold locked-in pension funds for former plan members, former spouses or common-law partners, or surviving spouses or partners.
You may transfer funds to a LIRA, if:

You are a member of a defined contribution pension plan and you stop contributing to the plan.

You are a member of a defined benefit pension plan and stop contributing to the plan before you reach the plan's early retirement age.

You are a member of a defined benefit pension plan (if the plan allows) who no longer contributes to the pension plan after you reach the plan's early retirement age.

You are the spouse or common-law partner and your marriage or relationship with the plan member/owner has broken down.

You are the spouse or common-law partner of a plan member/owner who has died.

You are the owner of another LIF, LIRA or LRIF.
In my case, upon complete wind up of the Nortel DB pension plan, I have two options..either roll it over to a LIRA or set my entitlement as an annuity with some life insurance company.
 

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... I worked for the public service for less than a year and was told I had to take all my commuted pension 15K + 6K.
Was this a provincial or federal gov't?

As I understand it, if it's the Feds, less than two years service means the pension is not vested. Only your employee contributions plus any growth will be paid out.

I believe Ontario vests their pensions with no waiting period, which would mean you would receive your employee contributions, the employer contributions as well as any growth.


... I am currently still not working and on EI. I assume this payout will affect that.
Maybe ... I believe it will depend on whether some of the total paid out is in excess of what the benefit would be.

However, when I left a private DB pension - it was my choice as to whether the excess was withdrawn as cash and had to be reported as income.
So even if there is excess, I'm not sure it would have to be withdrawn as income resulting in an impact on EI.


... EI says if the transfer was locked in my EI wouldn't be affected.
Did EI say that a transfer to an RRSP would affect EI?

Whether the transfer is to an RRSP or a LIRA, both are retirement plans which are tax deferred ... so I'm not sure why a transfer to an RRSP would make any difference to EI. I haven't had to claim EI so I'm not sure of the rules.


Just so you know, a LIRA can be setup to be similar to an RRSP (i.e. choose investments) where the main differences are that no further contributions can be made and at age 71 at latest, it has to be converted to something that pays out retirement income.
http://canadianfinanceblog.com/what-is-a-locked-in-retirement-account-lira/

There are a few exceptions that depending on what legislation the pension/LIRA is under, may allow the LIRA money to be accessed earlier.


... Why does the Pension Analyst say that am I not allowed to put this in a locked RRSP?
The part of my private DB pension that had to be transferred to an RRSP was described as being the excess collected which exceeded what the benefit earned. Where I'd earned say $10K in benefits according to the pension formula - the $10K went into the LIRA and anything above this went into the RRSP.


The key thing here is to make sure EI understands that part will go into the LIRA and part will go into the RRSP but as I understand it, neither one of these transfers should be income.


Does you pension info or web site provide details?


Cheers
 
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