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Life Income Funds

Life income funds (LIF) are locked-in registered retirement income funds that are offered by financial institutions such as banks, credit unions, and insurance companies. Life income funds provide an alternative to purchasing an annuity. You can continue to control the investment of your locked-in pension funds and also control, to a certain extent, the amount of income you receive each year. You are no longer required to purchase a life annuity with the funds in your life income fund at age 80.

Your spouse or partner is required to consent to the purchase of a life income fund. This is because the life income fund is a substitution for a life annuity which must provide for payment of reduced benefits to your spouse or partner if you die.

Once a life income fund is established and funds are transferred into it from a locked-in retirement account or pension plan, your income must commence before the end of the second fiscal year. For example, if you have established a life income fund on May 23, 2014, then you are required to take your first payment no later than December 31, 2015. In addition, the first payment cannot be made from your life income fund until the earlier of age 55 or the early retirement date under the pension plan from which the funds originated.

The Income Tax Act defines a minimum annual payment that must be taken from a life income fund once it is established. This minimum is based upon the life income fund holder's age, or the spouse's age, and the balance in the life income fund. The Pension Benefits Act defines the maximum annual payment that may be taken from the life income fund each year. The maximum withdrawal is based on your age, the balance in the life income fund, and the reference rate set for life income funds. The reference rate is determined in the Regulations under the Pension Benefits Act, and is based on the November long-term bond rate.

The balance of the life income fund at the end of the previous fiscal year is multiplied by a factor, which is provided in Schedule V of the Regulations.

For example:

Joe is 62 years old and his life income fund balance at the end of 2014 was $75,000, his maximum annual payment for 2015 is as follows:

$75,000 x .069 * = $5,175

If you require more income from your life income fund than the maximum described above, you may be eligible to take Temporary Income.

Your financial institution is required to provide you with a financial statement at the beginning of each year. That statement must show you the minimum amount that must be withdrawn, the maximum amount that may be withdrawn, and whether you are eligible for temporary income.

If you are age 65 or older, you can unlock your funds if they are below a certain threshold. Further details are contained in the locking-in section.

When you die, the value of your life income fund is paid out as a death benefit. Your spouse or common-law partner receives the payment. If you don't have a spouse or common-law partner when you die, payment is made to your beneficiary or estate. The death benefit is not locked-in.

You can transfer out of a life income fund with restrictions. You may transfer the funds to another life income fund, to a locked-in retirement account, or use the funds to purchase a life annuity. Transfers to locked-in retirement accounts cannot be made after the end of the year you reach age 71.

Your funds are protected against seizure by creditors. They cannot be assigned to anyone else, and they can't be used as collateral for a loan.

Your spouse or common-law partner may apply to receive a share of your life income fund.

Approved Life Income Funds

A life income fund may be purchased from a financial institution that has been approved by the Superintendent of Pensions to offer life income funds. View the Superintendent's List of Approved Life Income Funds.

Temporary Income from a Life Income Fund

If you are between the ages of 55 and 64, you may use your life income fund as a source of temporary income. The maximum life income paid from the life income fund is adjusted when temporary income is received. Not all financial institutions offer temporary income. If you think you may want this option, check with your financial institution before you transfer your locked-in pension funds into their life income fund.

Persons age 65 and older are not entitled to receive temporary income under the life income fund since most persons are receiving Canada Pension and Old Age Security benefits at that age.

To receive temporary income, you must complete Form 10 (PDF: 178k) and submit it to your financial institution. You must do this for each year that you wish to receive temporary income. A sample temporary income calculation is provided below.

Using Joe as our example again:

Age: 62

Balance in life income fund at end of 2014: $75,000

Temporary income from another source** (represented by T in the calculation). In this example, T = 0

STEP 1:
Maximum temporary income is the lesser of:

50 per cent of the year's maximum pensionable earnings (53,600 in 2015) - T = $26,800 - 0 = $26,800

and

$75,000 x .069 (Schedule V factor) x 4.09 (Schedule VI factor) = $21,166

STEP 2:
If the lesser amount above is less than 50% of YMPE, then temporary income is lesser of (50% of YMPE – T) or (LIF balance minus LIF transfers).

Therefore, Joe's maximum temporary income for 2015 is $26,800. For a subsequent calculation, we will call this amount "A".

STEP 3:
After temporary income is calculated, there is a further step to determine if any additional life income is payable. This calculation uses all of the same amounts used in the above calculation. The letter E will represent the result. “E” also cannot be less than zero.

E = (life income fund balance x Schedule V factor) - (A ÷ Schedule VI factor)

E = ($75,000 x .069) - ($26,800 ÷ 4.09) = $5,175 - $6,552 = - $1,377 = $0 (for this step as E cannot be less than zero).

After prorating for the remaining months of the year (May-Dec),Joe can therefore take a total amount of ($26,800 + $0)/12 * 8 months = $17,866 from his life income fund in 2015.

* .069 is the factor provided in Schedule V for a person who is 62 years old at the end of the previous fiscal year and assumes a reference rate of 6 per cent.

** Temporary income from another source is defined in the Regulations as temporary income from another life income fund. If Joe had other temporary income from other LIF’s in 2015, we would deduct the annual amount from $26,800 to find the correct amount of temporary income to which he would be entitled.

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Orange ClockFor More Information

Mailing Address:
Finance and Treasury Board
Pension Regulation Division
PO Box 2531
Halifax, NS  B3J 3N5

Phone: 902-424-8915, weekdays 8:30 - 4:30.
Fax: 902-424-5327
Email: 
novascotia.ca

Courier:
Finance and Treasury Board
Pension Regulation Division
1723 Hollis St, 4th Floor
Halifax, NS  B3J 1V9