Life Income Funds (LIFS)

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. An updated list of financial institutions is maintained at the Ontario Pension Commission. Persons wanting to know the status of a particular institution, or wanting to obtain the list can contact the Ontario 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.

At the beginning of every fiscal year the LIF owner will be asked to indicate 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 their 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.

Temporary Income

As of January 1, 2003, a LIF owner, who is at least age 54 but under age 65 at the end of the year preceding the date of the application, may apply each year to his or her financial institution on the prescribed application form for a temporary income which cannot exceed 40% of the year’s maximum pensionable earnings (YMPE) under the Canada and Quebec Pension Plans less any other temporary income.

Temporary income is not payable where any portion of the annual withdrawal amount is being transferred to any retirement savings arrangement that is not subject to section 18 or 18.1 of the regulations.

Temporary income is periodic income that supplements retirement income until Old Age Security (OAS) and Canada Pension Plan (CPP) or Québec Pension Plan (QPP) benefits are normally payable and includes temporary income from another LIF or LRIF, or an amount from a pension plan or a life annuity contract in the form of a bridge benefit or an integration of the retirement pension with benefits under the OAS or CPP/QPP.

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 Customs & 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 Customs & 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, including temporary income, 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.

Where do I get a listing of institutions?

An updated list of institutions is maintained at the Ontario Pension Commission. Persons wanting to know the status of a particular institution, or wanting to obtain the list can contact the Ontario Pension Commission or view our Website.

Note: Individuals interested in the LIF should seek the assistance of a qualified financial advisor.