Overview of locked-in plan maximums

Canadians may accumulate locked-in money as members of a pension plan. Once they start taking income from their locked-in plans (from a LIF/LRIF/RLIF), financial institutions are required to calculate a maximum annual payment each year based on pension legislation and restrict withdrawals to that maximum amount. This limit, which applies to all investments in locked-in plans, depends on the owner’s age and pension jurisdiction.  The maximum annual payment is intended to help ensure former pension plan members do not exhaust these assets prematurely.

Sun Life GIFs products

Two of the Sun Life GIFs products, Sun GIF Solutions Income Series and Sun Lifetime Advantage GIF, offer lifetime guaranteed income along with the core elements of a segregated fund contract, such as maturity and death benefit guarantees.

How the LIF maximum can impact lifetime guaranteed income products

For locked-in contracts with lifetime guaranteed income, we are still required to calculate the LIF/LRIF/RLIF maximum every year and restrict withdrawals in accordance with the terms of the contract and applicable pension legislation.  This means there may be clients who will not be able to receive the full lifetime guaranteed income amount. 

Whether income payments from any particular contract will be restricted by the LIF maximum depends on several factors, including market performance, economic conditions, income start age and the applicable pension legislation.

Implications for Sun GIF Solutions Income Series and Sun Lifetime Advantage GIF

Although these contracts provide a lifetime guaranteed income, they are not exempt from the legislated LIF maximums. Traditional life annuities, on the other hand, are not subject to such restrictions.  

To allow contracts that are restricted by the LIF maximum annual payment to receive an amount equal to the full lifetime guaranteed income, we are pleased to offer the life annuity payment option. With this option, the segregated fund contract will be subject to certain restrictions, consistent with a traditional life annuity.  Clients must also sign an election form to change their income to the life annuity payment option.

Many features of the segregated fund contract remain the same with the life annuity payment option – the existing maturity and death benefit guarantees are still applicable, clients will continue to receive statements, taxation remains unchanged, future beneficiary changes are permitted, and fund switches are still allowed.

However, there are certain restrictions as follows:

  • The assets must remain invested in the contract;
  • The funds cannot be transferred to another contract or another financial institution;
  • The contract is no longer eligible for any pension unlocking (such as financial hardship or shortened life expectancy), including any unlocking options introduced in the future;
  • No additional deposits, including transfers are permitted;
  • No changes can be made to future payments; and
  • This election is irrevocable.

Note that Clients can only elect this option when the LIF maximum is lower than the lifetime guaranteed income in the current calendar year. The option is only available for contracts in client name (not nominee-held). At the beginning of the year, a review will be completed for all client name LIF/LRIF/RLIF contracts.  In cases where the maximum is lower than the lifetime guaranteed income, the advisor will be contacted about the client’s situation and their options.