Life Income Fund (LIF)

A life income fund (LIF) is a retirement income vehicle. It’s also an investment account that only contains monies that were originally in a pension. Money may be transferred directly from a pension account to a LIF or from a locked-in savings account (such as an LRRSP or LIRA). Pension legislation requires that a certain minimum amount must be withdrawn each year; however, you cannot take out more than a prescribed (government dictated) maximum.

• LIFs may be purchased as early as age 49 but no later than age 71.
• Where a pension fund has normal retirement at age 60, a LIF may be purchased at age 49 with payments starting at age 50 (if allowed by provincial and plan regulations).
• Traditionally, the balance of a LIF must be used to purchase a life annuity by the end of the year in which the plan-holder attains 80 years of age.
• Most provinces no longer require an annuity to be purchased as of age 80.
• You must begin taking money out of a LIF by the second anniversary.
• Spouses and former spouses who are entitled to an employee’s pension benefits may purchase a LIF, if that option was/is available to the plan member.

LIFs, RLIFs, LRIFs and Prescribed RRIFs: How Do They Compare?

Restricted Life Income Fund (RLIF)

When a pension plan, LIRA or LRRSP allows partial unlocking, some jurisdictions require the remaining locked-in money to be transferred into a restricted life income fund (RLIF). Other than this provision, an RLIF has similar characteristics to a LIF.

Locked-In Retirement Income Fund (LRIF)

A locked-in retirement income fund (LRIF) is similar to a LIF in that it’s purchased with locked-in retirement funds transferred from a pension plan. An LRIF is subject to the same annual minimum withdrawals as RRIFs and LIFs. Maximum annual withdrawals are limited by a formula based on age and investment return. An LRIF may continue indefinitely with the assets managed by the owner in the same manner as a RRIF. Only certain provinces in Canada offer this option for residents of their jurisdictions. Alberta discontinued LRIFs in 2006. Ontario discontinued the creation of new LRIFs in 2008; however, existing LRIFs may carry on.

Advantage of LIFs and LRIFs

The advantage of LIFs and LRIFs is the continued flexibility to retain control of the capital while being able to withdraw an income throughout retirement. This flexibility can be particularly beneficial in the event that interest rates are low, making an annuity purchase unattractive. Low interest rates reduce the amount of income an annuity would provide. If active investment management becomes too bothersome, the LIF/LRIF may still be converted to an annuity at any time; however, the owner has much more flexibility in the timing of the purchase.

Both LIFs and LRIFs have maximum withdrawal limits set by provincial or federal legislation. These limits may change from year to year. In the event that the minimum amount exceeds the maximum amount, the minimum amount must be withdrawn to meet Canada Revenue Agency’s registration rules.

Prescribed RRIF (PRRIF)

In addition, Saskatchewan and Manitoba offer its residents, who fall under provincial legislation, a prescribed RRIF. Up to 100% (Saskatchewan) or  up to 50% (Manitoba), of pension sourced money may be transferred to a creditor-protected RRSP at age 55. Standard minimum withdrawal rates apply but there is no maximum withdrawal limit.

Stay Informed

Pension legislation is subject to change. Contact your employer for the most up-to-date information affecting your plan. Your employer will also be able to answer questions pertaining to your personal situation.

What is a Life Income Fund?

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