A life income fund (LIF) is a savings account established under a written contract between an individual and an authorized financial institution. This type of plan is designed to hold and grow tax-sheltered lump sums drawn from a RPP (registered pension plan), LIRA (locked-in retirement account) or locked-in RRSP (registered retirement savings plan). It also allows limited withdrawals.

Note: This section includes information on LIFs under Quebec and federal jurisdiction.

How it works
Taxation

How it works

A LIF is a specific kind of registered retirement income fund (RRIF) into which sums from a RPP, LIRA or locked-in RRSP can be transferred. However, unlike a RRIF, which has no maximum withdrawal limit, a LIF is subject to maximum annual withdrawals. A LIF is the logical extension of a LIRA or locked-in RRSP.

As the information below illustrates, there are many similarities between a LIF and a RRIF. The Legislative changes section provides a brief account of LIFs over the years and highlights the main differences between the federal LIF and the Quebec LIF.

A LIF combines the features of a RRIF and an annuity, in that it allows the holder to receive a life income. A life income is a pension income that an annuitant receives every year until his or her death.

LIFs involve three main steps: 

Transferring funds
Funds transferred to a LIF can come from three sources: a LIRA, a locked-in RRSP or an employer pension plan.

Legislation provides that individuals can maintain their LIRA (Quebec jurisdiction) or their locked-in RRSP (federal jurisdiction) until the end of the year in which they turn 71. LIRAs and locked-in RRSPs must be converted into retirement income by that time. Individuals can transfer, in whole or in part, the capital accumulated in their plan into a LIF under the same jurisdiction where the gains will continue to be tax-sheltered.

Generally, the monies in a supplemental pension plan established by an employer (commonly referred to as a "pension plan") may also be transferred directly into a LIF if the holder leaves their job.

Quebec or federal jurisdiction?
Quebec’s Supplemental Pension Plans Act applies only to private employer pension plans in which employees in Quebec participate.

However, pension plans for which the government is the employer, such as the Government and Public Employees Retirement Plan, theTeachers Pension Plan and the Civil Service Superannuation Plan are governed by their own legislation. Since 1996 and according to rules similar to those that apply to private employer pension plans, this legislation has allowed sums accumulated be transferred to a LIRA upon cessation of employment, provided the participant has contributed to the plan for at least two years.

Certain pension plans cannot be registered under provincial law and must be registered federally (Pension Benefits Standards Act, 1985) because of the specific nature of the company's activities. The main activity sectors concerned are:

• Chartered banks
• Radio, television or other communications fields
• Interprovincial transport
• Federal crown corporations 
   

Pension plans under Quebec jurisdiction include plans registered with the Régie des rentes du Québec (RRQ) and those registered under the laws of another province taking into account the place of work of the participants at the time they ceased to participate. So, regardless of the province where the plan is registered, the Quebec legislation only applies to Quebec employees who participate in the plan.
 

Withdrawals
As with a RRIF, the law states that a minimum amount must be withdrawn from a LIF each year. However, it also sets out a withdrawal limit.

Since the amount held in a LIF must be sufficient to provide the annuitant with income until their death, withdrawals may not exceed the maximum authorized each year. This measure was established to guarantee the annuitant a lifetime income rather than risk liquidating the funds quickly. The maximum limit is calculated based on the annuitant’s age, plan balance and a prescribed reference rate. The rules governing its calculation vary depending on the governing jurisdiction.

LIFs offer their holders much more flexibility when it comes to managing their capital. Holders determine the periodic income they wish to receive and can revise it at any time, subject to the prescribed limits. Lump-sum withdrawals are also permitted up to the yearly prescribed maximum.

These withdrawals are added to the holder's taxable income.

Legislative changes
The LIF (under Quebec jurisdiction) is a product that was created under Quebec’s Supplemental Pension Plans Act. It provides an alternative to the life annuity, which, until 1990, was the only way to convert a Locked-in retirement account (LIRA) in Quebec. Since then, LIFs have also been established by the other Canadian provinces under their pension plan legislation.

The federal government established the LIF in 1995 following changes made to the Pension Benefits Standards Act regulations.

A special regulation governs LIFs under Quebec jurisdiction, but does not apply to LIFs under federal jurisdiction or to LIFs in the other provinces. It is therefore important to distinguish Quebec LIFs from other LIFs. The following table compares the differences between the Quebec and federal LIF.

Comparison between Quebec LIF and federal LIF
Quebec LIF					Federal LIF
Minimum annual withdrawal	The spouse’s age may only be used for calculation purposes if they are younger.			The spouse's age can always be used for calculation purposes.
Maximum annual withdrawal	Under age 54*	Age 54 to 64*	Age 65* or over	Any age.
	Maximum life income** or temporary monthly income equal to: 1/12 x [(40% of MPE***) less (75% of other income, excluding this temporary LIF income). Conditions of the option: The annuitant must group all his or her LIFs. The annuitant's other income must not exceed 40% of MPE***.	Maximum life income** or temporary income limited to 40% of MPE*** plus maximum life income equal to: [(balance of LIF x factor A) less (temporary income/factor B)].	Maximum life income**	LIF balance   Value at January 1 of an annual annuity of $1 maturing at age 90. In 2011 Age            Rate 50 years     5.05% 55 years     5.26% 60 years     5.59% 65 years     6.08% 70 years     6.91% 75 years     8.44%
Maximum life income the year the plan was established	Not reduced, regardless of the month the plan was established.			Reduced based on number of months remaining in the year during which the plan was established.
Additional withdrawal or transfer	No	No	Possibility of withdrawing the balance in a lump sum or transferring it to an RRSP or RRIF if all of the retirement instruments are not more than 40% of the MPE.***	Possibility of withdrawing the balance in a lump sum or transfer it to an RRSP or RRIF: - in case of reduced life expectancy certified by a physician; or - as of age 90; or - as of age 55 if the balance is less than or equal to 50% of MPE.1 Possibility of withdrawing the balance, in part or in whole: - when the annuitant has been a non-resident for at least 2 years; or - in the event of financial difficulties; as of age 55, one-time transfer of 50% of the RLIF to an RRSP or RRIF.
Dissolution of a common-law marriage	The common-law partners may split the LIF if they have been living together for 3 years or 1 year if a child was born of their union.			The common-law partners may split the LIF if they have been living together for 1 year.
Death	Upon death, the common-law spouse’s beneficial right to the LIF is established if they have been living together for 3 years or 1 year if a child was born of their union. For civil unions, the spouse is entitled from the time of the union. If the LIF is transferred to the surviving spouse, they may cash it or transfer it to an RRSP or RRIF.			Upon death, the common-law spouse’s or civil union spouse’s beneficial right to the LIF is established if they have been living together for 1 year. If the LIF is transferred to the surviving spouse, they must transfer it to a LIF, an RLIF or a locked-in RRSP.

* Age of holder at the end of preceding year
** Maximum life income = balance of LIF x factor A
*** Year's maximum pensionable earnings (MPR) established under RRQ: $48,300 in 2011