The Honourable Jim Flaherty, Minister of Finance, today announced regulatory changes are now in effect allowing Canadians to take advantage of Budget 2008 improvements to the administration of Life Income Funds (LIFs).
"Many people, such as seniors, pensioners and individuals facing financial hardship, will now have greater freedom to move their investments and use the money when they want, for what they want," said Minister Flaherty. "These changes simply reflect the greater range of employment and lifestyle choices available in our fast-paced global economy."
"Our Government is committed to providing seniors with increased financial flexibility in retirement," said the Honourable Marjory LeBreton, Secretary of State (Seniors) and Leader of the Government in the Senate. "This is yet another positive example of how our Government is investing in seniors and pensioners, and honouring their investments in Canada."
LIFs hold investments stemming from federally regulated pension plans. Budget 2008 significantly enhances the flexibility to withdraw funds from LIFs through three provisions, which are now operational:
- Individuals 55 or older with total holdings in federally regulated locked-in funds of up to $22,450 will be able to wind up their accounts or convert to a tax-deferred savings vehicle with no maximum withdrawal limit, such as a Registered Retirement Income Fund or a Registered Retirement Savings Plan (RRSP). The threshold for small holdings will increase with the average industrial wage.
- Individuals 55 or older will be entitled to a one-time conversion of up to 50 per cent of LIF holdings into a tax-deferred savings vehicle with no maximum withdrawal limit.
- All individuals facing financial hardship (e.g. low income, high disability or medical-related costs) will be entitled to withdraw up to $22,450 a year. This maximum will also increase with the average industrial wage.
Since 2006, the Government of Canada has provided more than $1 billion in tax relief for Canadian seniors and pensioners, including doubling the pension income credit amount to $2,000, increasing the age credit amount to $5,066, and introducing pension income splitting.
Budget 2008 further unveiled the single most important personal savings vehicle since the introduction of the RRSP in 1957. The Tax-Free Savings Account is a flexible, registered, general-purpose account that will allow Canadians to watch their savings grow, tax-free. This bold new initiative will help Canadian seniors stretch their retirement savings further since capital gains earned in the plan will be exempt from any tax, even when withdrawn.
The regulatory LIF changes also provide individuals facing financial hardship who have locked-in RRSPs that are subject to federal pension rules with the ability to withdraw up to $22,450 a year.
Financial intermediaries will be required to include these provisions in all new LIF and locked-in RRSP contracts that are subject to federal pension rules under the Pension Benefits Standards Act, 1985. Individuals with existing contracts who wish to avail themselves of these provisions should discuss the required procedures with their financial institution or advisor.
The regulations set out the necessary forms that must be completed. Further information on LIFs and locked-in RRSPs is available on the Office of the Superintendent of Financial Institutions website at www.osfi-bsif.gc.ca.
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