In Canada, a type of registered retirement income fund that is used to hold pension funds, and eventually payout retirement income, is called a Life Income Fund (LIF). The life income fund (LIF) cannot be withdrawn in a lump sum; rather, owners must use the fund in a manner that supports retirement income for their lifetime. Each year's Income Tax Act specifies the minimum and maximum withdrawal amounts for LIF owners, which takes into consideration the LIF fund balance and the owner's annuity factor.
LIF owners are not required to purchase a life annuity, buy may choose to do so at any age. A LIF owner may also choose to transfer funds to another LIF, a locked-in retirement income fund (LRIF) or in certain cases to a locked-in retirement account (LIRA). The financial institution from which the LIF is issued must provide an annual statement to the LIF owner. Based on the annual statement, the LIF owner must specify at the beginning of each fiscal year the amount of income he or she would like to withdraw. This must be within a defined range to ensure the account holds enough funds to provide lifetime income for the LIF owner.
The maximum amount that can be withdrawn each year from a Life Income Fund (a "LIF") varies according to the owner's age, current long-term interest rates and the previous year's investment returns for the fund. The maximum annual withdrawal from a LIF is prescribed by the Pension Benefits Standards Regulation (the "Regulation").
A LIF owner's maximum allowable withdrawal for a calendar year is the greater of the following:
If you leave a job where you had a pension plan, you usually have a choice between leaving the pension money in the pension plan or transferring it to a locked-in retirement account (LIRA) or locked-in RRSP, where it can be invested according to your directions until it's time to retire. Typically, the money is locked-in and cannot be withdrawn until you start retirement.
After a minimum age, set by BC's provincial government, you can start to receive income from this pension money by converting it into a LIF.
People who have locked-in pension money invested in a LIRA or a locked-in RSP and want to start to receive an income from it, must roll the money into one of:
The money received as income from any of these plans should be considered when planning income.