Pension plans in Ontario can allow a non-resident former member to unlock and withdraw the commuted value of their deferred pension. If a plan sponsor wishes to provide this option, they will need to amend the plan terms and comply with the requirements of the Pension Benefits Act (PBA): section 50.0.1.
Requirements for unlocking a deferred pension
A deferred pension can be unlocked under the following circumstances:
- The former member is a non-resident of Canada for the purposes of the Income Tax Act (Canada).
- Plan administrators should seek their own legal advice on how best to determine whether a former member meets this definition and document this process.
- If the former member has a spouse, the spouse has waived their rights to any spousal survivor benefits. See Spousal waiver required to unlock a deferred pension for more details
Only former members of a pension plan can unlock their deferred pension. Members and retired members of pension plans cannot unlock their pension entitlements if they become non-residents of Canada.
If a non-resident person wants to unlock their benefits from a locked-in account (e.g., LIRA, LIF or LRIF), they can review Financial hardship unlocking or Pension unlocking: non-hardship for details.
Spousal waiver required to unlock a deferred pension
The spouse of the former member must waive their rights to any spousal survivor benefits before the pension can be unlocked.
To do so, the spouse must complete and submit the following form to the plan administrator:
- Form 4.2 – Waiver of Survivor Benefit from a Registered Pension Plan by Spouse of Non-resident Former Member (right-click on the link and Save as a link to your computer or drive).
Process and forms for non-resident former members
If a plan sponsor wants to allow non-resident former members to unlock their deferred pension, it must amend the terms of the pension plan to permit it and the plan administrator must develop its own processes and forms. The process should document each request with the following details:
- Whether the former member is a non-resident for the purposes of the Income Tax Act (Canada)
- Whether a spousal waiver is required
- If a former spouse is entitled to a portion of the deferred pension
- If all requirements of the Pension Benefits Act (section 50.0.1) have been met
Taxes on withdrawing the commuted value of a deferred pension
Former members should be encouraged to obtain legal and tax advice regarding any tax consequences of unlocking and withdrawing the commuted value of their deferred pension.
Plan administrators should also seek legal and tax advice to determine whether they should withhold taxes on these payments.