Locked-In Retirement Income Fund (LRIF)

Revised May 2005

What is a Locked-In Retirement Income fund (LRIF)?

The LRIF is a restricted registered retirement income fund that is used to hold and payout pension funds upon retirement. The LRIF provides an alternative to the traditional life annuity purchased through an insurance company and, the opportunity to maintain control over pension capital and its investments. In comparison to the life annuity and Life Income Fund (LIF), the LRIF is the most flexible option for determining the flow of income. It is, however, the most volatile option because the amount that can be taken in any year will change depending on the investment earnings during the previous year. 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 LRIF should seek the assistance of a qualified financial advisor.

Who qualifies for a LRIF?

The following individuals have the option of transferring pension funds to a LRIF, 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 LIRA
    
4. persons with funds in a LIF

Where do I get a LRIF?

Any financial institution wanting to offer an LRIF must be listed on the Superintendent's list of financial institutions for the purpose of the LRIF.

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 LRIF 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 LRIF 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 LRIF, there is no requirement to purchase a life annuity. However, a LRIF owner may, at any age, purchase a life annuity with some or all of the LRIF funds. Further, a LRIF owner may transfer the funds to another LRIF, a LIF, or before age 69, to a LIRA.

Determination of Minimum and Maximum Income Levels

The minimum withdrawal an LRIF owner must take from their LRIF 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 is the greatest of (a) the market value at Jan 1st minus the net value of all transfers into the fund (b) the investment income earned in the immediately preceding fiscal year (c) for the first two fiscal years, 6% of the fund, and (d) in the year following a transfer from a LIF, the investment income in the previous year from the LIF and LRIF.

Example: assuming investment earnings in the previous year of 6%, an LRIF owner retiring at age 65, with a LRIF 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: $6,000.00

At the beginning of every subsequent fiscal year the financial institution calculates a new range, and the LRIF 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 LRIF?

Funds being held in a LRIF 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 LRIF in the event of the break-up of a 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 partner may transfer their share of the funds to a LIRA, LIF or LRIF.

Joint Life Pension Waiver

If the money in the LRIF is used to purchase a life annuity and the member or former member has 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 LRIF contract may provide for a cash payment or series of payments to the LRIF owner only if, as certified by a qualified medical practitioner, the life expectancy of the LRIF owner has been significantly shortened due to 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 common-law partner in the form and manner prescribed.

What happens to LRIF funds in the event of a member's or former member's death?

If the LRIF owner dies, the value of the LRIF 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 LRIF from a pension plan or from a LIRA, LIF or another LRIF, the employer or the financial institution presently holding the funds must:

1. ensure the financial institution issuing the LRIF contract is on the Superintendent's list of financial institutions for purposes of the LRIF;
    
2. advise the financial institution issuing the LRIF 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 LRIF owner requests a transfer from one LRIF to a new LRIF or LIF during a given calendar year, the financial institution issuing the new LRIF or LIF contract cannot make any payments, to the LRIF owner during that year. The LRIF owner must be sure to make any desired withdrawals from the old LRIF before making the transfer.