Ontario has made changes to its locking-in provisions, following the footsteps of the western provinces that have introduced different forms of “unlocking” of pension funds over the past few years, says ACS/Buck’s extra! newsletter.
Effective next year, a new Life Income Fund(LIF)is being introduced to take the place of current LIFs and Retirement Income Funds(RIFs).
Individuals with funds in an old LIF or a LRIF prior to December 31, 2008 are “grandfathered.” There won’t be a requirement to move funds out of the existing vehicle.
On and after January 1, 2009, the only locked-in payout vehicle—other than the purchase of an annuity from an insurance company—will be the new LIF.
Within 60 days of the purchase of a new LIF, people will have a one-time opportunity to take 25% of the value in cash or transfer it to a non-locked-in RRSP or RRIF.
With the new LIF, people don’t have to use their remaining assets at age 80 to purchase a lifetime annuity. As long as there are funds remaining, payments under the LIF can continue indefinitely.
The maximum payout rule is also different. The old rule is based on an interest assumption and a “term to age 90” concept, but the new LIF will provide a maximum payout each year equal to the greater of the old rule and the investment earnings in the previous year.
Once a LIF is purchased, people will not be able to transfer the assets to a LIRA. The only option is to transfer to another LIF or purchase an annuity.
Even though these changes have a larger impact on financial institutions offering locked-in vehicles than on plan sponsors, the newsletter recommends that plan members are kept informed.
“Since all locked-in funds are sourced from pension plans to begin with,” it states, “most plan sponsors/administrators will incorporate these changes into their communication materials, in the interests of helping members make informed choices.”
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