Locked-in retirement accounts (LIRAs) and life income funds (LIFs) are instruments for transferring amounts accrued in supplemental pension plans (also called pension funds or pension plans). A LIRA is used to accumulate retirement savings, while a LIF is used to draw a retirement income (withdrawal). They are offered by certain financial institutions.
LIRAs and LIFs governed by the Supplemental Pension Plans Act are under the supervision of Retraite Québec.
Locked-in Retirement Account (LIRA)
A LIRA is a special type of registered retirement savings plan (RRSP) into which a person can transfer amounts from
- a supplemental pension plan
- an annuity contract, if the annuity is derived from a supplemental pension plan
- a LIF
- another LIRA
Unlike a regular RRSP, the amounts in a LIRA are locked-in and can only be used for retirement income. Amounts cannot be withdrawn from a LIRA except under certain circumstances in which a refund is allowed.
To receive a retirement income, the holder must transfer the LIRA to a LIF or use those amounts to purchase a life annuity from an insurer.
Life Income Fund (LIF)
A LIF is a special registered retirement income fund (RRIF) into which a person can transfer amounts from
- a supplemental pension plan
- an annuity contract, if the annuity is derived from a supplemental pension plan
- a LIRA
- another LIF
Unlike RRIFs, which have no ceiling on withdrawals, a LIF is subject to minimum and maximum withdrawals each year.
Two types of income are possible with a LIF:
- a life income, which is the retirement income a holder can draw every year from his or her LIF until death
- a temporary income, which is an additional amount that can be withdrawn for a set period provided the LIF contract offers this option. Certain conditions apply.
A LIF holder who no longer wishes to draw an income may transfer the amounts in their LIF to a LIRA before the maximum age prescribed under taxation rules.
Refunding LIRAs and LIFs
In certain situations, a LIRA or LIF can be refunded, that is, the holder can receive a payment in cash or a transfer to another retirement savings vehicle such as an RRSP or RRIF.
Transfer from a LIF to an RRSP or RRIF
A specific amount can be transferred from a LIF to an RRSP or RRIF each year. Certain conditions apply.
Breakdown of a Union
Under certain conditions, LIRAs and LIFs can be partitioned between the spouses following the breakdown of a union if the spouses make the request to the financial institution concerned.
In the Event of Death
If the holder dies, the balance of the LIRA or LIF will be paid to the holder’s spouse. If the spouse has renounced it, or if there is no spouse, the balance will be paid to the holder’s heirs.
If the amounts invested in the LIRA or LIF were from the breakdown of a union and the holder had a new spouse, the amounts will be paid to the new spouse only if provided for in the contract signed with the financial institution.
Statements
LIRA and LIF holders receive statements from their financial institution containing various information, including the balance of the LIRA or LIF.
A person can hold
- a LIRA until December 31 of the year in which the person reaches age 71 (at which time it must be transferred to a LIF to draw an income or to an insurer to purchase a life annuity)
- a LIF at any age; however, a temporary income can no longer be drawn if the holder was 65 or over on December 31 of the previous year.
For information on the conditions applicable to LIRA and LIF refunds, as well as other special cases, refer to the brochure Are you familiar with LIRAs and LIFs? or Retraite Québec’s website.
Income from a LIF
A LIF holder can draw a life income (retirement income) every year. The amount varies between
- the minimum prescribed under taxation rules (the minimum is $0 the year in which the LIF is opened), and
- the maximum authorized for the year, which is calculated on the basis of age, the balance in the LIF and the reference rate set for the year
A temporary income, which is paid under certain conditions, cannot be greater than 40% of the maximum pensionable earnings (MPE) for the year in which the application is made. In 2018, the temporary income cannot exceed $22,360.
Tax Treatment
Amounts withdrawn and refunded are taxable. However, income tax can be deferred if the amounts are transferred directly between a LIRA, LIF, RRSP or RRIF and a supplemental pension plan in accordance with taxation rules.
