Rule changes to Quebec-regulated LIF withdrawals
Updated as of June 19, 2024
News & Views
Where Quebec-regulated LIRAs and LIFs come from
Quebec locked-in retirement accounts (LIRAs) and life income fund (LIFs) are derived from funds transferred from a Quebec-regulated pension plan, either as a result of termination of employment or partition in the event of certain relationship breakdowns (i.e., marriage, civil union and common-law partners). Many Quebecers own one of these investment vehicles.
Note that the federally-regulated LIF is not covered by this document.
Locked-in LIRAs and LIFs
LIRA funds are locked in. Locking in consists of withdrawal restrictions for the investment account owner. Very few withdrawal options exist for LIRAs.
Consequently, LIRA funds are often transferred to a LIF because—despite being locked in—this vehicle allows withdrawals that are subject to an annual limit known as the LIF maximum withdrawal, or maximum life income. This limit applies until the funds LIF are depleted.
Rule changes
On June 19, 2024, Retraite Québec amended the Regulation respecting supplemental pension plans . The effective date for these amendments is set for January 1, 2025.
More specifically, here are the changes to come to the Quebec LIF that are applicable as of the above-mentioned date:
- A LIF owner aged 55 and over will no longer be subject to a maximum withdrawal (i.e., the LIF will be uncapped). The owner will now be able to make a withdrawal of any amount, above the mandatory minimum.
- A LIF owner aged 55 or over will no longer be able to access temporary income. In any case, the uncapping of LIF withdrawals at age 55 and over makes this measure irrelevant. Temporary income will still be available for those under 55 and will be slightly enhanced.
- LIF owners aged 65 and over will no longer have access to the one-time withdrawal option, which was generally available when the value of locked-in accounts was equal to or less than 40% of the maximum pensionable earnings (MPE). Once again, the uncapping of LIF withdrawals at age 55 and over makes this measure irrelevant.
- An owner who has been a non-resident for two years still has the option of unlocking the LIRA funds, but this measure no longer exists for the LIF.
- The difference between the LIF maximum withdrawal and the LIF minimum withdrawal will no longer be transferable to an RRSP, RRIF or not locked-in VRSP account. This conversion unlocking technique will no longer be possible.
Consequences
Rule changes to LIF withdrawals will significantly affect financial planning. The following points are worth noting:
- It’s well known that deferring Quebec Pension Plan (QPP) and Old Age Security (OAS) benefits is, in many cases, a good way to offset the risk of longevity in retirement. The ability to draw more heavily on the LIF may help finance this deferral.
- The withdrawal order for different types of investment could change. In fact, certain objectives, such as the following, may influence the decision whether to withdraw from a Quebec LIF or another investment vehicle—i.e., whether or not to take advantage of the uncapping of the Quebec LIF:
- Elimination or retention of the priority of payment in favor of the spouse on death
- Maintenance or increase of the partitionable value of the family patrimony
- Maintenance or increase of the value of the acquests of the partnership of acquests
- Maintenance or increase of the value of private property in the partnership of acquests
- Creditor protection
- Elimination or retention of withdrawals from other investment vehicles subject to the spouse’s permission, if applicable
- Access to the Home Buyers’ Plan (HBP), Lifelong Learning Plan (LLP), and First Home Savings Account (FHSA)
- General estate objectives
What’s next
Advisors will be faced with many questions from their clients. Be prepared to answer them!
Important disclosure
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