LIFE INCOME FUND (LIF) Revised May 2005
What is a Life Income Fund (LIF)? The LIF is a restricted
registered retirement income fund that is used to hold and payout
pension funds upon retirement. The LIF provides an alternative to the
traditional life annuity purchased from an insurance company and the
opportunity to maintain control over pension capital, its investment,
and the flow of income. The fund cannot be cashed out in one lump sum.
It must be used to provide retirement income for your lifetime.
Individuals interested in the LIF should seek the assistance of a
qualified financial advisor. Who qualifies for a LIF? The
following individuals have the option of transferring pension funds to a
LIF, at any age; 1. retiring members of money purchase plans. 2.
retiring members of defined benefit plans (where the plan permits). 3.
persons with funds in a Locked-in Retirement Account (LIRA). 4.
persons with funds in a Locked-in Retirement Income Fund (LRIF).
Where do I get a LIF? Any financial institution wanting to offer
an LIF must be listed on the Superintendent's list of financial
institutions for the purpose of the LIF. Where do I get a listing
of institutions? An updated list of financial institutions is
maintained at the Manitoba Pension Commission. Persons wanting to know
the status of a particular institution, or wanting to obtain the list
can contact the Manitoba Pension Commission or view our website.
Variable Income Subject to an annual minimum and maximum
withdrawal amount, an individual who transfers pension funds to a LIF
will receive an adjustable flow of retirement income. Based on the
annual statement, which must be provided by the financial institution,
at the beginning of every fiscal year the LIF owner must determine the
amount of income he or she wishes to withdraw, within a defined range.
The withdrawal range is calculated so that there is enough money in the
fund to provide income for his or her lifetime. Under the LIF
there is no requirement to purchase a life annuity. However, a LIF owner
may, at any age, purchase a life annuity with some or all of the LIF
funds. Further, a LIF owner may transfer the funds to another LIF, a
LRIF, or before age 69, to a LIRA. Determination of Minimum and
Maximum Income Levels The minimum withdrawal a LIF owner must take
from their LIF in any given year, other than the first year of the fund,
is determined according to the minimum withdrawal formula for Registered
Retirement Income Funds (RRIF) under the Income Tax Act. The maximum
withdrawal that can be taken from the LIF in the year is equal to the
LIF fund balance multiplied by the applicable prescribed annuity factor.
Example: in 2003, a LIF owner at age 65, with a LIF fund balance of
$100,000.00, would have the choice of an annual income within the
following range: Minimum Withdrawal: $4,000.00 Maximum
Withdrawal: $7,200.00 At the beginning of every subsequent
fiscal year the financial institution calculates a new range, and the
LIF owner is asked to indicate the amount he or she wishes to withdraw
for the year. One time transfer of up to 50% of LIF/LRIF funds
A LIF or LRIF owner who is at least age 55 may apply for a one-time
transfer under section 21.4 of the Act, which is defined under the
regulation as a “prescribed transfer”, of an amount up to 50% of the
balance in one or more of his or her LIFs or LRIFs to a Registered
Retirement Income Fund (RRIF) which is not locked-in. The RRIF must meet
the requirements of the regulation (“prescribed RRIF”).
The maximum amount available for a prescribed transfer by an applicant
may be affected by:
- any amount that is payable to a former spouse or common-law
partner as required by the credit splitting provisions under section
31(2) of The Pension Benefits Act,
- an order issued by the Maintenance Enforcement Program of the
Department of Justice under The Garnishment Act to enforce a
maintenance order
- an order issued by the Maintenance Enforcement Program under
section 59.3 of The Family Maintenance Act to preserve assets.
A prescribed transfer cannot be made by an applicant who was a
pension plan member unless the applicant’s cohabiting spouse or
common-law partner consents in writing by completing the
“Spouse’s/Common-law Partner’s consent to transfer to a Registered
Retirement Income Fund Contract”.
What investments are permitted for a LIF? Funds being held in a
LIF may be invested in a manner that complies with the rules for
investments of a RRIF (contact Canada Revenue Agency), except in a self
directed mortgage. What happens to the LIF in the event of the
break-up of the marriage or common-law relationship? Upon break-up
of the marriage or common-law relationship, the funds must be split
according to the requirements set out in The Pension Benefits Act, and
the former spouse or common-law partner may transfer their share of the
funds to a LIRA, LIF or LRIF. Joint Life Pension Waiver If
money in the LIF is used to purchase a life annuity and the member or
former member has a spouse or partner, the annuity must provide for a
joint pension payable for the life of the member and the spouse or
partner and reducing to not less than 2/3rds on the death of either the
spouse or partner. This joint pension may be waived by the member and
their spouse or partner if the financial institution has the member and
their spouse or partner jointly complete the "Pension Waiver Form".
Exception to the Locked-in clause A LIF contract may provide
for a cash payment or series of payments to the LIF owner only if, as
certified by a qualified medical practitioner, the life expectancy of
the LIF owner has been significantly shortened, due to a mental or
physical disability. If the member or former member has a spouse or
common-law partner a "Pension Waiver Form" must be signed by the member
or former member and the spouse or partner in the form and manner
prescribed. What happens to LIF funds in the event of a member's or
former member's death? If the LIF owner dies, the value of the LIF
balance shall be paid to: 1. the surviving spouse or common-law
partner; or 2. where there is no surviving spouse or partner, to the
designated beneficiary or estate of the purchaser. Funds may be paid
out in cash, or transferred to any other vehicle permitted by Canada
Revenue Agency. Transfer Requirements Prior to funds being
transferred to a LIF from a pension plan or from a LIRA, LRIF or another
LIF, the employer or the financial institution presently holding the
funds must, 1. ensure the financial institution issuing the LIF
contract is on the Superintendent's list of financial institutions for
purposes of the LIF; 2. advise the financial institution issuing the
LIF contract, in writing, that the funds must be administered according
to the requirements of the Act; and 3. if applicable, ensure that a
member or former member with a spouse or common-law partner, jointly
complete a "Pension Waiver Form". Note: When a LIF owner
requests a transfer from one LIF to a new LIF or LRIF during a given
calendar year, the financial institution issuing the new LIF or LRIF
contract cannot make any payments, to the LIF owner during that year. The LIF owner must be sure to make any
desired withdrawals from the old LIF before making the transfer.
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