The Financial Services Commission of Ontario has issued a warning on pension scams.

FSCO is reminding Ontario consumers and advisors that advertised “deals” allowing individuals to get money out of a locked-in RRSP, a locked-in retirement account, a Life Income Fund or a locked-in retirement income fund may cost them more in the long run than merely the loss of money for their retirement.

FSCO has a branch that will assist people facing financial hardship to apply to unlock these funds. The Pension Benefits Act permits this in some circumstances.

“Companies claiming to be able to help you unlock funds for financial hardship are just charging an extra fee to fill out forms that are provided by FSCO,” said Dave Gordon, Deputy Superintendent of Pensions at FSCO. “At FSCO, we have staff who can help people access their locked-in accounts if they meet the financial hardship criteria. While all successful applicants will pay a fee, there is no need for individuals to purchase assistance from one of these companies. Why should they pay twice to receive the same money?” said Mr. Gordon.

FSCO also warns of a second scam involving “loans” made with the locked-in account as collateral. Advertisements appearing in newspapers claim to have found a loophole in the federal Income Tax Act allowing the withdrawal of locked-in pension funds held in a LIRA, LIF or LRIF.

A variation of this scam involves the purchase of shares in a private company using your locked-in account as security. Money is then loaned against the shares of the company you have purchased.

FSCO reminds consumers and advisors that these types of transactions are illegal under the Ontario Pension Benefits Act.

According to FSCO, taxpayers who get involved in these schemes may also face large, unexpected tax bills. Canada Customs and Revenue Agency has confirmed no tax loophole exists. If a locked-in account is used as security for a loan or to purchase shares in a company that is not a “qualified investment” under the Income Tax Act, the locked-in account ceases to be qualified and income tax becomes payable.