(FHU) Financial Hardship Unlocking General Program Process and FAQ:
1. What exactly is the Financial Hardship Unlocking (FHU) Program?
If you’re a locked-in account owner going through some financial difficulties, the FHU program is for you. It is not supposed to give you ongoing income before you retire, though, and it is not supposed to replace other programs for income assistance that are available in Canada.
The Employment Pension Plans Act and Employment Pensions Plan Regulation govern the different financial hardships that can unlock money using the FHU program.
2. Why must I fill out a form to access my locked-in money?
The purpose of a pension plan is to ensure that you have retirement income as long as you live. So the pension plans require that if you transfer funds into locked accounts, such as an LIRA or an LIF, you have to use those funds in retirement.
It’s true that as an employee contributing to your own pension plan, you have a say in how the funds go to work. However, the employers who set up and manage the pension plans and contribute on behalf of their employees also have a say. The government, in this situation, provides a balance between the purpose of the plan and the needs of the individual pension owner.
3. Where are financial hardship application forms available?
Financial institutions have online fillable and printable versions of the Application to Unlock Alberta Funds due Financial Hardship. The website for the Alberta Treasury Board and Finance also has the forms.
4. What exactly is an Alberta locked-in account?
The Act and Regulation of Alberta governs the use of the funds in your locked-in account if:
- You were working in Alberta on your last official day with the company that set up the pension for you, and
- You were NOT employed by a federal entity (federal government, Department of National Defense, RCMP, or some First Nations organizations, and
- You were NOT working for an industry subject to federal regulations (such as shipping, banking, telecom, airlines and transportation between provinces).
If your last day of employment took place in another province, it’s likely that that province has rules that govern distribution from your LIF or LIRA. The Canadian government and several provinces have established FHU programs to help applicable pensioners. The best way to find out which jurisdiction controls the pension is to contact the financial institution holding the funds.
5. My employer’s pension plan still holds my funds. Can I apply to gain access to the funds because of a financial hardship?
So long as the funds remain in the employer’s registered pension plan (RPP) instead of your own LIF or LIRA, you cannot access them. If you still are an employee of the company that set up the pension plan, you have to terminate membership in that plan to gain access to your funds. In most cases, this means that you have to leave the company.
If you don’t work for the employer who set up the pension plan anymore, than you have to transfer funds from that plan into a LIF or LIRA before you can apply for consideration by the FHU program. The way to start that transfer process is to get in touch with your former employer.
6. What qualifies as a hardship according to the FHU rules in Alberta?
- Eviction for rent arrears – If you face eviction because of unpaid rent on your lease, you may be eligible to withdraw the amount you owe your landlord.
- Low income – If your income is going to fall below a certain level, you may be able to unlock your LIF or LIRA for twelve months.
- Foreclosure – If your main home (or your pension partner’s main home) faces foreclosure, you may be able to withdraw what you need to settle the arrears and pay any associated fees.
- First Month’s Rent / Security Deposit – If you or your pension partner is moving into a new home, you may be able to unlock funds to pay for the initial month’s rent as well as the security deposit.
- Renovation / Medical Costs – If you have no other way to pay for needed renovations to your primary residence because of disability (for yourself, your pension partner or dependents), you may be able to use LIF or LIRA funds. The same goes for medical expenses for any of you.
7. How often may I apply?
You are limited to one application per calendar year for each reason. This applies whether your application is accepted or not. Any other application during that calendar year must be for a different reason.
8. How much may I withdraw from my account?
The application form details the maximum amounts that you may withdraw for each reason. You are allowed to choose more than one reason on each form.
9. When will I find out the response to my application?
Each financial institution has set in place a procedure for responding to these applications. Please inquire with the financial institution administering your LIF or LIRA to find out the response time.
10. How much does it cost to apply?
Again, each financial institution sets its own parameters. There is no law in Alberta forbidding the assessment of administrative fees.
11. Is an application to the FHU program always necessary to unlock the account?
There are four cases in which you may unlock LIF or LIRA funds without filling out the application. These consist of:
- Shortened life expectancy
- Non-resident of Canada (tax purposes)
- Small withdrawal amounts
- 50% unlocking
The Alberta Treasury Board and Finance website contains a detailed set of explanations for each of those cases.
12. I’m over 50 years old, but I have not yet switched my LIRA to an LIF in order to benefit from the 50% unlocking provision. Am I allowed to apply to the FHU program?
Yes, because the FHU option is not connected to the LIRA-to-LIF conversion option.
FHU Application Process:
1. Do I have to fill out a separate application for each reason if I am applying for multiple reasons?
No, you can use one form to apply for multiple reasons.
2. What if I need money but do not fall under any of the listed reasons?
The laws about the FHU program are very clear about the reasons that will lead to approval for unlocking of your LIF or LIRA in Alberta. If you don’t fall under any of the reasons, your managing financial institution will not permit you to withdraw locked funds.
3. Do I have to use the most recent application form?
Yes, the financial institution only processes the current version of the paperwork, because it reflects up-to-date law. Your financial institution will not accept any earlier version of the application (or any other version of the application). Each December, the Alberta Treasury Board and Finance website posts an updated version of the application.
4. Do I need to submit any other documents with the application form?
The required documentation will vary with the reason for the application. The form lists the necessary documents next to each reason. Without the proper documentation, your application will not receive approval. The documentation needs signatures within a calendar year of the date when you submit the application. If you do not submit everything that is required, the financial institution will ask you for the remaining information, and approval will be delayed.
5. Do I need to have any of the documentation notarized or certified?
As of 2016, none of the documentation requires any notarization or certification.
6. What constitutes a pension partner?
A pennon partner is your spouse for at least three years, or your common-law partner for at least three years. If you have had a child together, that three-year requirement is waived. Common-law partnerships also include same-sex partnerships.
7. Does my pension partner have to give consent for me to withdraw LIF or LIRA funds because of financial hardship?
Yes, because if you unlock funds, this could reduce the eventual benefit that your pension partner would receive. Even if you earned the pension before you had a partner, your partner may still be entitled to gain benefits from it. There is a Pension Partner Agreement as part of the application that has to be witnessed and signed without your being present.
If you received the LIF or LIRA because of a former pension partner’s passing or in a divorce, then this is not a requirement.
8. Can anyone be a witness to the application signature(s)?
Any witness has to be at least 18 years of age.
In the case of the Pension Partner Agreement, the witness has to be someone other than you (who is 18 years old), and you may not be present when it is signed. You must sign and date both the Pension Partner Agreement and the Certification of the Applicant within 90 days of the bank receiving the application.
9. What if I need help filling out the application?
The financial institution managing your LIF or LIRA will have personnel who can help you fill out the application.
10. Where do I send in my application?
Send the application form to the financial institution administering you r LIF or LIRA. Do not send it to the Government of Alberta, because the government does not make decisions about approval.
Review Decision Questions
1. How do I receive my funds after the financial institution has approved the unlocking process?
Once approval takes place, the funds are no longer considered “locked-in.” Once they are unlocked, you have several options:
- Withdrawing the funds in cash and transferring them into a regular bank account. If you elect this option, the institution will withhold income tax.
- Transferring the funds into a regular RIF or RSP, so they will remain tax sheltered. Now you may withdraw the funds as you would with any typical RIF or RSP.
- Combine the two by taking some money out in cash (after tax withholding) and transferring the remainder to an RIF or RSP.
2. Will I receive the approved amount? Or will I receive less due to tax withholding?
You should receive the net amount for which you have been approved under the aegis of the FHU account. This means that if you are choosing a cash withdrawal, the amount that leaves your LIF or LIRA will be that net amount plus income tax withheld, as well as any other fees, so long as you have enough money to cover that withdrawal.
However, if you make a tax-sheltered withdrawal, the money moves into an RRSP – but it is the approved amount plus the tax that would have been withheld. It is possible that you will owe more money on the unlocked funds when you file your tax return at the end of the year with the Canada Revenue Agency (CRA).
3. I received approval for an amount that is greater than what I have in my LIF or LIRA. May I take the rest from another LIF or LIRA that I own?
The application process may only unlock one LIF or LIRA at a time. You would need to submit two forms – one for each account that you want to unlock.
4. If I receive approval to unlock a particular amount, do I have to withdraw it all upon approval, or may I wait to withdraw some of it until a later time?
If you receive approval for a set amount, the unlocking must take place at one time. So if you unlock $10,000 but realize you only need $8,000, you can take the $8,000 in cash and transfer the rest to an RSP or RIF.
5. I noticed that after withdrawing the approved amount, I had less than the “Small Amounts” number remaining in my LIF or LIRA. May I withdraw the rest of it now?
As of 2016, the “Small Amounts” number was $10,980. If your market value ever goes below that during that year, you may unlock it due to the Small Amounts provision. If you are 65 years of age or older, that amount doubles, to $21,960. The Alberta Treasury Board and Finance website contains the updated Small Amounts trigger value for each year.
6. What is the minimum amount that I may unlock?
As of 2016, no minimum unlocking amount exists so long as the application has received approval.
7. May I put money back into my LIF or LIRA after unlocking funds?
You may not put money back into an LIF or LIRA, but you may invest in your retirement by putting funds into an RRSP.
8. My LIF or LIRA is currently invested in a GIC that is not redeemable, but I did receive approval to unlock funds. Is my financial institution obligated to release funds to me?
If you have selected a non-redeemable investment or have a contract to invest your money for a certain period of time, you cannot unlock your money. FHU program approval does not overturn your contractual agreements with your bank.
9. My application was denied. May I submit the application again this year for the same reason?
Applications are limited to once per calendar year per reason.
10. May I appeal the denial of my application?
Your financial institution’s dispute resolution department is the place where you should go to resolve this dispute. The Government of Alberta does not involve itself with processing of the unlocking application.
Confidential Consultation with a Trustee