The federal government is looking to give Canadians with locked-in pensions more flexibility to access their funds by offering three ways to get at money in life income funds.

“This is a very positive change,” says Jamie Golombek, vice president of taxation and estate planning for Toronto-based AIM Funds Management Inc. “People have been asking for this for years.”

Individuals who have LIFs, accounts that hold investments transferred from federally regulated registered pension plans, are currently limited to strict annual maximum withdrawals. As part of the proposed 2008 federal budget, LIF holders who need to access the funds will now have three options to get at their money:

> Individuals 55 or older with small holdings of up to $22,450 will be allowed to wind up their accounts entirely, with the option to convert to a tax-deferred savings vehicle, such as an RRSP. The threshold for small holdings will increase with the average industrial wage.

> Individuals 55 or older will be entitled to a one-time conversion of up to 50% of LIF holdings into a tax-deferred savings vehicle with no maximum withdrawal limits.

> All individuals facing financial hardship (such as low income, high disability or medical-related costs) will be entitled to unlock up to $22,450. This maximum will also increase with the average industrial wage.

The proposal to give all Canadians aged 55 and over who have federal LIFs the option to convert 50% into a tax-deferred savings account appears to mimic, to some degree, changes made at the provincial level in some provinces to provincially regulated life income plans.

Saskatchewan allows LIF holders to unlock 100% through a transfer to a preferred registered retirement income fund, while Alberta and Manitoba offer 50% unlocking Ontario this year introduced a 25% unlocking.