locked in pension funds
What is a prescribed RRIF?March 12, 2015
By Sheryl Smolkin
If you are a member of the Saskatchewan Pension Plan you can elect to retire any time between the age of 55 and 71. You can purchase an annuity from the plan which will pay you an income for the rest of your life.
You can also transfer your SPP account into a locked-in retirement account (LIRA) or a prescribed registered retirement investment account (prescribed RRIF). Both options are subject to a transfer fee.
The LIRA is a locked-in RRSP. It acts as a holding account so there is no immediate income paid from the account. You direct the investments and funds in this option and funds remain tax sheltered until converted to a life annuity or transferred to a prescribed RRIF. You choose where the funds are invested.
The LIRA is only available until the end of the year in which you turn 71. One advantage of a LIRA is that it allows you to defer purchase of an annuity with all or part of your account balance until rates are more favourable.
You must be eligible to commence your pension (55 for SPP) to transfer locked-in pension money to a prescribed RRIF. If you are transferring money directly from a pension plan, the earliest age at which your pension can commence is established by the rules of the plan.
You may transfer money from a LIRA at the earlier of age 55 (SPP) or the early retirement age established by the plan where the money originated. Funds in your SPP account or your LIRA at age 71 that have not been used to purchase an annuity must be transferred into a prescribed RRIF.
Unlike an annuity, a prescribed RRIF does not pay you a regular amount every month. However, the Canada Revenue Agency requires you to start withdrawing a minimum amount, beginning in the year after the plan is set up.
The Income Tax Act permits you to use your age or the age of your spouse in determining the minimum withdrawal. This is a one-time decision made with the prescribed RRIF is established. Using the age of the younger person will reduce the minimum required withdrawal.
To determine the minimum annual withdrawal required, multiply the value of your prescribed RRIF as at January 1 by the rate that corresponds to your age:
Table 1: Prescribed RRIF + RRIF minimum Withdrawals
|Age at January 1||Rate (%)||Age at January 1||Rate (%)|
|71||7.38||94 and beyond||20.00|
|For revised RRIF withdrawal schedule based on 2015 Federal Budget, see Minimum Withdrawal Factors for Registered Retirement Income Funds.|
There is no maximum annual withdrawal and you can withdraw all the funds in one lump sum. This is in contrast to other pension benefits jurisdictions such as Ontario and British Columbia where locked-in funds not used to purchase an annuity must be transferred to a Life Income Fund at age 71 that has both minimum (federal) and maximum (provincial) withdrawal rules.
The same LIRA and prescribed RRIF transfer options apply to Saskatchewan residents who are members of any other registered pension plan (DC or defined benefit) where funds are locked in.
If you have saved in a personal or group registered retirement savings plan (RRSP) your account balance can be transferred into a RRIF (as opposed to a prescribed RRIF) at any time and must be transferred into a RRIF no later than the end of the year you turn 71 if you do not take the balance in cash or purchase an annuity.
The minimum withdrawal rules are the same as those of a prescribed RRIF (see Table 1). However, even in provinces like Ontario and British Columbia where provincial pension standards legislation establishes a maximum amount that can be withdrawn from RRIF-like transfer vehicles for locked in pension funds (LIFs), there is no cap on the annual amount that can be taken out of a RRIF.
Also read: RRIF Rules Need Updating: C.D. Howe