Life Income Funds (LIFs)

Life Retirement Income Funds (LRIFs)

All locked-in plans originate from transfers of Registered Pension Plans. LIFs and LRIFs are similar to RRIFs they requre minimum annual withdrawals. Depending on the type of plan you have or are transferring from there will be different options and requirements. There is a minimum age at which time you can elect to start receiving income and a maximum age when you will be required to start receiving income. Provincial legislation for LIFs may also require you to purchase an annuity at a certain age. There is different legislation governing locked-in plans depending on where the plan originated from. The applicable legislation governing locked-in plans can be either provincial or federal.

There are exceptions to the rule with foreign companies that have operations in Canada. In some cases the locked-in plans are registered in a foreign jurisdiction. This becomes more complicated. Foreign companies are required to register their company pension plan in the province they have their Canadian operations in for their employees. This may not always be the case, we have dealt with situations where the foreign company does not register their company pension plan in Canada for their Canadian employees. In these cases the plan would be governed by legislation in a foreign jurisdiction. 

By a certain age or when the plan member would like to start receiving income from their locked-in plan they will have to:

1. Open a LIF 

2. Open a LRIF

4. Open a RLIF

5. Open a PRIF (also referred to as a variable benefit account)

6. Purchase an Annuity

Benefits of Transferring to your own locked in plan:

Tax Deferral 

Unlike traditional pension plans that require you to start receiving income at age 65 you can benefit from additional tax deferral. By transferring to your own locked-in plan you are not required to convert it into a locked-in income plan until age 71.

Flexibility

Under certain circumstances subject to the pension legislation in the jurisdiction governing your plan you may be able to unlock your locked-in funds. By unlocking your funds you are able to make withdrawals. The funds can be used to pay off your mortgage, pay off personal debts. pay for your children's education, start a business, travel or other personal financial needs. 

You are no longer restricted by your Registered Pension Plan when to start receiving you pension. You can start your withdrawals as early as age 55 or benefit from tax deferral up to age 71.

Control over you Investments

You have complete control over you investments and are able make changes to your investments based on your personal financial objectives and risk tolerance. If your employer's pension plan becomes insolvent resulting in a reduction of pension benefits you will no longer be effected by your employer's plan.

Beneficiary Designation

Many traditional defined benefit registered pension plans only allow for a spousal designation. Individual locked-in plans don't have this restriction when designating a beneficiary. You can designate your children or estate as beneficiary on your plan. If you and your spouse pass away prematurely any assets remaining in your plan will be paid to your designated beneficiaries. With the employer's defined benefit registered pension plan the funds are often forfeited.

Creditor Protection

Due to the locked-in provision of LRIFs they are protected from seizure from creditors, the exception the this rule is some jurisdictions permit pensions to be garnished for unpaid support payments. If you are unlocking funds and transferring them to a RRIF you will no longer benefit from creditor protection with certain plan types. In order to maintain potential creditor protection you can transfer to an annuity or a segregated fund and name a beneficiary within the prescribed class on your plan.

Taxation 

You are taxed as income at your personal marginal tax rate on all withdrawals from locked-in plans. 

LRIFs

LRIFs are offered in the following Provinces:

1. Alberta

2. Manitoba

3. Newfoundland and Labrador

4. Ontario

LIFs 

Life Income Funds (LIFs) are available in all provinces except Prince Edward Island and Saskatchewan. In most provinces, you must buy a life annuity with the remaining funds in the LIF by the end of the year in which you reach age 80.

Federal and Provincial Rules Governing Locked In Plans:

Federally regulated LIFs

Federally regulated Life Income Funds (LIFs) or locked-in RSPs (LIRAs) can only be transferred to RLIFs. The earliest age you can set up a LIF and start withdrawals is age 55. You can unlock up to 50% of the value of RLIFs by transferring them to RRSPs or RRIFs. In order to unlock a portion of the locked-in funds the transfer has to be made within 60 days of the creation of the RLIF. You are only allowed to unlock the locked-in accumulated pension funds one time. The remaining 50% of the funds in locked-in LRIFs will be subject to minimum and maximum annual withdrawals as a LIF. The transfer options for the remaining 50% of locked-in funds are as follows:

1. Purchase an annuity

2. Purchase RLIF (this option is available up to age 71)

3. Purchase an LRIF (this option requires one to start taking withdrawals)   

Newfoundland & Labrador

LIFs must be converted and used to purchase an annuity at age 80.

Saskatchewan and Manitoba

PRIFs also called variable benefit accounts are only available in Saskatchewan and Manitoba for their pension plan members. You can only transfer locked-in assets to PRIFs if your locked-in pension funds originated from a pension plan in the province of Saskatchewan or Manitoba. In Manitoba only 50% can be converted from a LIF or LFIR to a PRIF. The PRIF replaces the Life Income Fund (LIF) and Locked-in Retirement Income Fund (LRIF). In a PRIF you have more flexibility at retirement without any maximum annual withdrawal limits or the requirement to purchase an annuity by age 80.

Making withdrawals from Accounts:

LRSPs and LIRAs are locked-in accounts that have more restrictive rules governing them, you cannot withdraw funds from them. LIF, LRIF and RLIF accounts have less restrictive rules governing them, you can make withdrawals from them under certain circumstances. Some provinces have started to amend their provincial legislation making funds more accessible from locked-in accounts.

LIF withdrawals:

Depending on the provincial legislation governing your plan a LIRA cannot be converted into a LIF prior to age 55 or prior to the age you would start to receive pension benefits. After a LIF account is opened you have the flexibility to choose between the minimum up to the maximum amount you can withdrawal annually. LIF withdrawals can be paid out either monthly, quarterly or annually.

LRIF withdrawals:

LRIFs have less stringent rules than LIFs, essentially they are like RRIFs with locked-in provisions. LRIFs are set up by a transfer of funds from Locked-in Retirement Accounts (LIRAs), Registered Pension Plans (RPPs), Locked-in Income Funds (LIFs) that originated in the province of Alberta, Ontario, or Manitoba, or from existing LRIF accounts. In certain provinces the legislation governing these plans have been amended to allow for more flexibility of withdrawals and to unlock funds under certain circumstances.

The information provided on this web site is intended for general information only. It should not be construed as legal, accounting, tax or specific insurance and investment advice. Clients should consult a professional advisor concerning their situations and any specific insurance and investment matters. While reasonable steps have been taken to ensure that this information was accurate as of the date hereof, Stone-Hedge Financial Group Inc. and its affiliates make no representation or warranty as to the accuracy of this information and assume no responsibility for reliance upon it.