Wondering about LIF rules
Question: I left my employer in 1987, soon after a take-over. At the time there were surplus funds in the company pension. After many years, it was determined that the surplus was to be divided among current and former employees. My share has been in a locked-in RRSP since 1992. I am now retired and have recently converted the funds to a LIF (life income fund). I understand new rules are in effect as to minimum and maximum withdrawals from a LIF. Can you explain these rules? Also I believe a LIF no longer has to end at age 80 and an annuity purchased with remaining funds. Is this correct? – M.C., Vancouver
The minimum withdrawal requirements from a LIF are the same as those from a registered retirement income fund (RRIF). Up to age 70, the calculation is the percentage derived by subtracting your age on Jan. 1 each year from 90 and dividing that into 100. Thus a person who is 70 years old must withdraw a minimum of 5 per cent of the market value of the LIF on Jan. 1.
From age 71 on, a percentage is applied that increases each year. The full table is included in my book m>The Complete Guide to RRIFs and LIFs
Unlike RRIFs, a maximum annual withdrawal rule applies to LIFs. This is determined by each province. Any British Columbia financial institution should be able to provide you with the percentages that apply in your province, or contact the office of the B.C. Superintendent of Pensions. You can also find information at www.fic.gov.bc.ca/pensions/rsp-lif/lifmax.htm
LIFs are indeed subject to termination at age 80 and must be converted to an annuity at that time. Some provinces offer another option in the form of a life retirement income fund (LRIF) that does not have to be converted, but as far as I can see from a search of the B.C. Ministry of Finance website it is not available there.