MARKETI NG T R A I N I N G PRODUCTS. Disbursement Strategies. Training Module

Transcription

1 MARKETI NG T R A I N I N G PRODUCTS Disbursement Strategies Training Module

2 Table of Contents DISBURSEMENT STRATEGIES THE VARIOUS SOURCES OF RETIREMENT INCOME FEDERAL OLD AGE SECURITY PROGRAM FEDERAL GUARANTEED INCOME SUPPLEMENT PROGRAM CANADA PENSION PLAN PROVINCIAL RÉGIME DE RENTES DU QUÉBEC EMPLOYER PENSION PLANS INDIVIDUAL REGISTERED AND NON-REGISTERED SAVINGS THE CONVERSION OF REGISTERED SAVINGS VEHICLES CONTINUITY OF THE RRSP CASH IN THE CONTRACT CONVERSION INTO A RRIF PURCHASE AN ANNUITY COMBINE A RRIF AND AN ANNUITY THROUGH THE LIFE INVESTMENT CONTINUITY OF THE LIRA/LOCKED-IN RRSP CONVERSION INTO A LIF/LOCKED-IN RRIF PURCHASE AN ANNUITY TAX WITHHOLDINGS ON RRIF, LIF OR LOCKED-IN RRIF PAYMENTS THE GUARANTEE IN RRIF, LIF OR LOCKED-IN RRIF CONTRACTS APPENDIX A. LOCKED-IN FUND WITHDRAWAL CONDITIONS BY PROVINCE A.1 SUMMARY TABLE A.2 DETAILS OF THE CONDITIONS FOR WITHDRAWALS FROM LOCKED-IN FUNDS A.2.1 Alberta A.2.2 British Columbia A.2.3 Prince Edward Island A.2.4 Manitoba A.2.5 New Brunswick A.2.6 Nova Scotia A.2.7 Nunavut A.2.8 Ontario A.2.9 Quebec A.2.10 Saskatchewan A.2.11 Newfoundland/Labrador A.2.12 Northwest Territories A.2.13 Yukon Last Update : May 2012

3 Disbursement Strategies Once you have read this document, you will be able to: Identify the various sources of retirement income. Know and understand the modes of the various conversion rules applicable to various investment vehicles offered in the industry. Master the Industrial Alliance disbursement product offering. ACTIVITIES Read the following text Answer the verification questionnaire Last update : May

4 With the number of baby-boomers set to retire in the next few years, now is the time to develop your disbursement expertise. This document shows you what you have to know to be able to continue providing your clients with sound advice for this new step in their life. 1. The Various Sources of Retirement Income Retirement income can come from different sources, such as a retirement plan offered through an employer, the savings that the individual has accumulated during his active life and various public plans. To this end, let s take a look at the various government plans available at retirement: 1.1 Federal Old Age Security Program Old Age Security is a monthly benefit, paid on request, to most Canadians who are at least 65 years old and who meet the residency requirements. The applicant s professional history is not a factor in determining eligibility and the individual doesn t necessarily have to be retired. Old Age Security pensioners pay federal and provincial income taxes. High income pensioners also repay all or a portion of their benefits through the federal tax plan. 1.2 Federal Guaranteed Income Supplement Program The Guaranteed Income Supplement is a monthly benefit paid to residents of Canada who receive a basic Old Age Security pension (full or partial pension) who have a low income or no income at all. The Guaranteed Income Supplement can start to be paid in the same month as Old Age Security. Beneficiaries must re-apply for the Guaranteed Income Supplement each year by producing a statement of gains or a declaration of income by April 30. Hence, the amount of monthly payments, determined for the year, can increase or decrease according to the changes reported by a beneficiary in their annual income. Contrary to the basic Old Age Security pension, the Guaranteed Income Supplement is not taxable income. The Supplement is not paid outside Canada after a period of six months, regardless of the individual s length of residency in Canada. Last update : May

5 The table below indicates the maximum and average monthly rates of Old Age Security (OAS), Guaranteed Income Supplement and Allowance benefits, as well as the maximum annual income to be eligible for these benefits. Old Age Security payment rates are revised in January, April, July and October to take into account the increase in the cost of living measured by the Consumer Price Index. The term spouse also includes common-law spouses. Pensioners are not eligible for benefits if their income, or if the total of their income and their spouse s income, is higher than the maximum amount shown in the table. The Allowance stops being paid a $30,336 whereas the GIS stops being paid at $39,264. Old Age Security payment rates April to June 2012 Type of benefit Beneficiaries Average monthly benefit (January 2012) Maximum monthly benefit Maximum annual income Old Age Security All beneficiaries $ $ See note Guaranteed Income Single person $ $ $16,368 Supplement Pensioner s spouse $ $ $21,648 Non-pensioner s spouse $ $ $39,264 Spouse of an Allowance beneficiary $ $ $39,264 Allowance All beneficiaries $ $1, $30,336 Allowance to the survivor All beneficiaries $ $1, $22,080 Note Pensioners whose personal net income is higher than $69,562 must repay all or a portion of the maximum amount provided for the Old Age Security Pension. The amounts to be reimbursed are usually deducted from their monthly benefits before they are issued. The entire OAS is clawed back when the pensioner s net income is at least $112,772. (Source: ) Last update : May

6 1.3 Canada Pension Plan The CPP is a monthly payment made to people who have contributed to the Canada Pension Plan. The benefit aims to replace about 25% of the gains on which a person contributed to the Plan. To have access to a CPP retirement pension, the client must make at least one valid contribution to the Plan, and: must be at least age 65; or be between age 60 and 64 and meet the gain requirements as specified by law. The retirement pension does not begin automatically. The client must make a request (unless he already receives a disability benefit from the CPP and is under age 65, at which time the disability benefit automatically becomes a retirement pension). The following conditions must be respected to be eligible for a retirement pension between age 60 and 64: Stop working have stopped working before the end of the month preceding the beginning of the CPP retirement pension and during the month in which the retirement pension begins. OR Earn less than a determined amount have earned less than the maximum monthly amount of retirement pension from the CPP during the month preceding the beginning of the pension as well as the month in which the pension begins. The retirement pension is calculated according to the amount and duration of contributions to the CPP (or to the CPP and the Régime de rentes du Québec). The amount also depends on the retirement age. The CPP retirement pension is indexed annually according to the Consumer Price Index. Last update : May

7 1.4 Provincial Régime de rentes du Québec Program A sufficient contribution to the Régime de rentes du Québec is required to receive a retirement pension. The amount of retirement annuity is calculated according to the earned income posted in the client s name since 1966, the year in which Plan activities began. It also varies according to the age when the client begins to receive the pension. A client can start to receive the retirement pension at age 60, but the amount will be lower than if he waits for the normal retirement age, which is 65. If your client leaves the job market earlier, he will have to wait until age 60 to be able to receive the pension. The calculation of the retirement pension takes into account the client s age: it varies according to whether the payment begins before or after the client s 65th birthday. At age 65, the pension is neither decreased nor increased. Before age 65, the pension decreases by 6% for each year (1/2% per month) that separates the client from his 65th birthday. After age 65, the pension increases by 6% for each year (1/2% per month) that has elapsed since the client s 65th birthday. Maximum monthly amounts for clients who begin to receive their retirement annuity in 2012 Beneficiary s age Rate paid Maximum monthly amount 60 years 70% $ years 100% $ years or over 130% $1, Last update : May

8 From age 60 to 70, the amount can vary according to the month in which pension payments begin. Important... The retirement pension is taxable. It is indexed in January of each year according to the cost of living. (Source: Employer Pension Plans A retirement plan accessible via the employer is either a defined contribution or defined benefits plans. The retirement pension available via the defined contribution plan will be based on the balance accumulated in the plan by the individual, taking into account contributions made and the return generated by the investments held. It is therefore a plan whose risk is assumed by the individual. The primary defined contribution plans are: the traditional defined contribution registered pension plan, the deferred profit sharing plan (DPSP), the simplified pension plan (SPP). The retirement pension available through the defined benefits plan will be based on the percentage determined by the plan (usually between 1.5% and 2%), the number of years of service and a proportion of income (e.g.: average of the best three years of salary or the last five years of service). The retirement pension is therefore set in advance, which can facilitate retirement income planning. The risk in such a plan is assumed by the employer. The individual retirement plan (IRP) can be added to the traditional registered pension plan. 1.6 Individual Registered and Non-registered Savings Individual savings come from contributions made to an RRSP or received through a contributing spousal RRSP. Non-registered savings can be added to these two sources of savings. This document primarily focuses on registered savings. Therefore, we will now take a look at the continuity of the RRSP. Last update : May

9 2. Conversion of Registered Savings Vehicles Before approaching the subject, it is relevant to indicate the usual disbursement order favoured in the field of financial planning. First, an individual should begin by disbursing the amounts accumulated in non-registered savings. The next step is to liquidate amounts held in locked-in plans, and terminate with registered savings. The principle behind this disbursement order is to continue to defer taxes which allows registered savings to accumulate over the longest possible period (respecting the limits prescribed by law of course). Disbursing the locked-in plan before the registered plan liquidates a stricter vehicle in terms of the withdrawal limits imposed, before drawing upon savings with no withdrawal restrictions. However, one must be careful in the application of such a strategy. Budget contingencies should not be minimized. If such a situation arises and the individual only has registered savings, the cost of this contingency increases in order to take into account the tax withholdings made on withdrawals from such savings, which can also cause an imbalance in the individual s retirement plan. 3. Continuity of the RRSP The maturity of an RRSP 1 corresponds to the year in which the annuitant reaches age 71. Before the end of this period, the amounts held in an RRSP contract must be assigned to another purpose. This leaves the annuitant with three possibilities: Cash in the amounts in the RRSP Convert the balance of the RRSP contract into a RRIF Purchase an annuity It is also possible, and often recommended, to combine these options. 1 When we refer to the maturity of an RRSP, we are not referring to the maturities of the investments held in the RRSP account, but rather the RRSP contract itself. Last update : May

10 3.1 Cash in the Contract Cashing in the amounts in the RRSP contract involves a partial or total withdrawal of the investments held in the RRSP. The amounts collected will be added to the taxpayer s taxable income for the year in which the contract is collected. The primary advantage of this option is its simplicity and the fact that the total amount after taxes is available at the annuitant s discretion. The main disadvantage is that the total withdrawal is taxable, in addition to the fact that this amount will no longer grow in a tax shelter. This option is rarely the most advantageous and should be avoided as much as possible. 3.2 Conversion into a RRIF Somewhat like an RRSP, a RRIF (registered retirement income fund) is a registered contract in which funds can grow in a tax shelter. Contributions cannot be made to a RRIF, except for transfers from another RRIF. A minimum withdrawal must be made from each RRIF each year in the form of retirement income and this withdrawal is added to the current year s taxable income. It is possible for the taxpayer to benefit from a tax credit for the pension income. A RRIF can also be converted into an annuity at any time. The RRIF enables the annuitant to gradually withdraw his registered funds while only being taxed on the portion withdrawn each year. The minimum withdrawal is calculated according to a percentage of the plan value as at January 1 of each year and according to the annuitant s age. There is no set maximum for withdrawals. The calculation can be made using the younger spouse s age to minimize withdrawals. The following table illustrates the percentage of minimum withdrawal that must be made each year: Last update : May

11 Annuitant/spouse Minimum withdrawal as a% of assets as at January 1* Age on RRIF RRIF January 1 Before Dec. 31, 1992 After Dec. 31, years 4.00% 4.00% 66 years 4.17% 4.17% 67 years 4.35% 4.35% 68 years 4.55% 4.55% 69 years 4.76% 4.76% 70 years 5.00% 5.00% 71 years 5.26% 7.38% 72 years 5.56% 7.48% 73 years 5.88% 7.59% 74 years 6.25% 7.71% 75 years 6.67% 7.85% 76 years 7.14% 7.99% 77 years 7.69% 8.15% 78 years 8.33% 8.33% 79 years 8.53% 8.53% 80 years 8.75% 8.75% 81 years 8.99% 8.99% 82 years 9.27% 9.27% 83 years 9.58% 9.58% 84 years 9.93% 9.93% 85 years 10.33% 10.33% 86 years 10.79% 10.79% 87 years 11.33% 11.33% 88 years 11.96% 11.96% 89 years 12.71% 12.71% 90 years 13.62% 13.62% 91 years 14.73% 14.73% 92 years 16.12% 16.12% 93 years 17.92% 17.92% 94 years 20.00% 20.00% 95 years 20.00% 20.00% * The federal government modified the rules governing minimum withdrawals in The advantages of the RRIF are its flexibility in terms of withdrawals and the freedom that it offers in terms of investment choices. In fact the RRIF holder is in full control of the investment decisions and can invest in different asset categories (GIC, bonds, funds, stocks, etc.). However, investments must be planned properly in order to have sufficient liquidity for withdrawals while maintaining a comfortable lifestyle and not depleting the Last update : May

12 funds prematurely. Finally, the balance of a RRIF can be transferred to the spouse or beneficiary(ies) at death. Different payment modes are available for the RRIF held in an IAG Savings and Retirement Plan contract. They are: minimum income: this is the minimum withdrawal prescribed by law; level income: through this option, the payments made will always be the same and the duration of the payments will be based on the balance held in the RRIF; indexed income. The benefits increase annually to maintain purchasing power. The client chooses the rate and it cannot exceed 8%. All investments that are part of the IAG Savings and Retirement Plan offer are available for a RRIF (except for the Select Canadian Fund, which is not available for registered contracts), and the investments initially held in the RRSP can be rolled over when the RRSP to RRIF conversion takes place. To cover mandatory withdrawals, the client can withdraw up to 10% of the value of the contract with no surrender charges (or the minimum RRIF). 3.3 Purchase an Annuity An annuity is a contract that provides an individual with regular payments for life or for a certain period in exchange for a premium. These payments can be made at practically any frequency, but are usually made monthly. An annuity is used to spread out the income from a RRIF, but non-registered savings as well. There are two main types of annuity: the life annuity and the annuity certain. Each of these types of annuity is available as an immediate annuity or a deferred annuity. An immediate annuity is an annuity whose first payment is made within 60 days following the reception of the premium. A deferred annuity is an annuity whose payments are made more than 60 days after the premium is received. (For more information on annuities, refer to the previous IA IQ questionnaire on Annuities) 3.4 Combine a RRIF and an Annuity Through the Life Investment The combination of an income guaranteed for life and the flexibility of a RRIF is an advantageous and relatively simple strategy to meet financial needs at retirement. It is now possible with the life investment offered exclusively in RRIF contracts. Like the annuity, the life investment provides a steady income guaranteed for life while the withdrawals from the flexible portion of the RRIF are variable. By paying for fixed expenses (housing, food, etc.) using the payments from the life annuity and Last update : May

13 discretionary expenses with the flexible portion of the RRIF or cash, your client can benefit the most from his assets. This combination of options allows your client to diversify his retirement income to obtain more stability and security while continuing to benefit from the performance and flexibility of the RRIF. FINANCIAL SITUATION FINANCIAL NEEDS Available options Affluence Need for security Additional expense Fixed expenses Liquidity RRIF/investment Guaranteed deposit certificate Annuity The diversification obtained by combining these options makes it easy to deal with financial market fluctuations. For example, the life investment is the ideal choice when the financial markets are negative or the interest rates are down since the payment is fixed and guaranteed. The opposite situation can also be beneficial. For example, if the markets are up or the interest rates increase, the flexible portion of the RRIF contract could produce better results, which would translate into a higher future income. By choosing the life investment within the RRIF, your client benefits from an increased feeling of security in addition to having access to investments that offer excellent potential returns, two very important aspects in retirement planning. In addition, including the life investment within the RRIF contract minimizes the mandatory minimum withdrawal that must be made from the flexible portion each year. Hence, the annuitant will be in a position to take advantage of the potential returns on the stock market for a longer period. This inclusion in the RRIF contract also allows for the amount invested in the life investment that is part of the fixed income portion of the client s portfolio to be included in the suggested asset allocation in the investor profile. At death, the life investment cannot be rolled over as is. The life investment requires individual, hence unique qualification. In addition, the RRIF is an individual contract. It is impossible to establish a joint RRIF. The rollover of the life investment could also lead to a situation where the required minimum would no longer be respected. The rollover can be made according to the rules, but the life investment will be liquidated. The life portion is surrendered and deposited in the RRIF (the difference between the single premium and the withdrawals made) and the rollover rules subsequently apply. Last update : May

14 The following table summarizes the main advantages: RRIF (flexible portion) Flexible income Independence in investment decisions Control and flexibility in terms of withdrawals Conversion into an annuity possible at any time Life investment Guaranteed periodic income No investment decision to make Income independent of the financial markets No risk of depleting the capital during the client s lifetime (life annuity) Peace of mind Illustration software Use the financial needs evaluation questionnaire to determine the appropriate amount of payment for your client s needs based on his expenses and revenues. An abbreviated budget section has been designed for this purpose. The application will make the recommendation as to the amount of life investment required for the fixed income expenses to be covered. Product particulars Minimal investment amount: $25,000 Available options: On a single life Enhanced P.S.: joint life option not available Guarantees available: Capital reimbursement Reimbursement of the floor capital (no age limit) Types of income Minimum Indexed, maximum 8% for the entire contract Level Contrary to the life annuity, the life investment is redeemable at all times subject to surrender fees (see formula in contract). However, the amount of the payment and guarantee will have to be adjusted proportionally according to the amount surrendered. Last update : May

15 Once the choice is made, the life investment payments cannot change unless a surrender is made. Also, a RRIF contract with a life investment option cannot be subsequently converted into a RRSP contract. The first payment, combined or not with the flexible RRIF payment, must be made by December 31 of the year following the payment of the single premium in the life investment. The 10% no-fee withdrawal rule does not apply to the life investment. The rule applies on the flexible portion only. The amount provided for in the life portion must be withdrawn. The illustration will have to be provided within 48 hours with the F12A application duly completed in order for the rate to be guaranteed. 4. Continuity of the LIRA/Locked-in RRSP Somewhat like an RRSP contract, a LIRA/locked-in RRSP is a specific registered retirement savings plan in which it is possible to transfer amounts from a supplemental pension plan. The amounts held in this type of plan are qualified as locked-in because they must be used to obtain a retirement income. Since the amounts come from a supplemental pension plan, they are destined to provide an income for retirement and cannot be withdrawn more rapidly than permitted by law. Therefore, with few exceptions, it is not possible to withdraw more than the amounts permitted (refer to Appendix A). Note that when an employee terminates his employment, it is the employer who provides the plan participant with details of the options available to him concerning his supplemental pension plan. Contrary to the RRSP, only two options are available upon maturity of a LIRA/locked-in RRSP: Convert the amounts into a LIF/locked-in RRIF. Use the accumulated amounts to purchase a life annuity. Locked-in plans are governed by provincial laws and by one federal law the 1985 Pension Benefits Standards Act and share more or less the same features. 4.1 Conversion into a LIF/Locked-in RRIF The LIF/locked-in RRIF is to the LIRA/locked-in RRSP what the RRIF is to the RRSP. The only difference between these two types of contract is the maximum withdrawal Last update : May

16 imposed on locked-in plans. In fact, like the RRIF, the LIF/locked-in RRIF requires a minimum withdrawal, but it also imposes a maximum withdrawal per calendar year. Certain provincial rules require that, when the annuitant reaches age 80, the remaining funds be used to purchase a life annuity (refer to Appendix A). 4.2 Purchase an Annuity The option to purchase an annuity is also available with locked-in funds. The selected annuity must be a life annuity and must meet certain criteria established by each province. Overall, these laws are rather similar (refer to Appendix A). For a LIF/lockedin RRIF conversion, it is possible to make the maximum withdrawal prescribed by law for a LIF/locked-in RRIF contract and begin annuity payments the same year. 5. Tax Withholdings on RRIF, LIF or Locked-in RRIF Payments No tax withholding is done on payments made in the above-mentioned contracts (caution!! The amount withdrawn remains taxable income). The tax withholdings on lump-sum withdrawals or on the portion in excess of the minimum are: Withdrawal exceeding the minimum Federal Provincial Up to $5,000 5% 16% $5,001 to $15,000 10% 16% Over $15,000 15% 16% Please note that a request can be made to withhold taxes on the minimum payment. Last update : May

17 6. The Guarantee in RRIF, LIF or Locked-in RRIF Contracts For the Ecoflex Series, the maturity date of a RRIF, LIF or locked-in RRSP contract is determined the same way as the RRIF, as long as the annuitant has not reached age 71. Starting at that age, the maturity date is automatically set at 15 years following the date the first fund units were purchased and is extended from 15 years to 15 years. The guaranteed minimum value at maturity of this type of contract is determined as follows: 100% of the initial deposit (75% if after age 71), plus 100% of subsequent deposits (75% during the T 15 period), less withdrawals (proportional to the fair market value (FMV)). It is important to take this formula into account on the establishment of a new contract following a transfer from external amounts from different sources. If the contract is established when the initial amount is received, subsequent deposits will be 75% guaranteed. The Daily Interest Fund (DIF) is an excellent place to deposit funds while waiting to receive the total amount before establishing the contract. For example, if a contract is established for an annuitant between 57 and 71 years of age following a $100,000 transfer from one source and $8,000 from another source. If the cheque for the lower amount is received first and the contract is established using this amount, an amount of $83,000 will be guaranteed at maturity (100% of $8,000 and 75% of $ ). If the contract is established when the total amount is received, the guarantee will be $108,000. Withdrawals are proportional to the market value of the contract, which benefits the client when the stock market is up, but could be a disadvantage in the event of negative returns. Last update : May

18 For example: RISING market FALLING market MV: $35,000 MV: $15,000 FMV: $20,000 FMV: $20,000 Withdrawal: $5,000 Withdrawal: $5,000 Proportion according to MV 14.29% Proportion according to MV: 33% ($5,000/$35,000) ($5,000/$15,000) Proportion according to FMV: 25% Proportion according to FMV: 25% ($5,000 /$20,000) ($5,000 /$20,000) The guaranteed minimum value at death of this type of contract is determined as follows: 100% of deposits made prior to age 80, 75 % afterwards (75% if in specialty funds), less withdrawals (proportional to the fair market value (FMV)). Finally, the exemption from seizure advantage is maintained for the balance held in disbursement contracts (respecting the appointment of beneficiary rules). Congratulations!! You have finished. Keep in mind that even if you do not perform disbursements now, the time will come (and sooner than you think! ) where your clients will want to find out more. Make sure they find out from you! Last update : May

19 ECOFLEX INVESTMENTS APPENDIX A. LOCKED-IN FUND WITHDRAWAL CONDITIONS BY PROVINCE* (January 2003) A.1 Summary Table Conditions Provinces Temporary income Reduced life expectancy Percentage of the MPE (Maximum pensionable earnings) Excess transfer Non-resident Canadian citizen Lump-sum withdrawal Financial problems Alberta N Physical or mental incapacity with spousal waiver) 20% of the MPE or 40% of the MPE, > 65 years N Holder no longer resides in Canada N N British Columbia N Physical or mental incapacity (with spousal waiver) 40% of the MPE, > 65 years N Holder no longer resides in Canada N N Prince Edward Island** N Physical or mental disability (case by case) N N N N N Manitoba 40% of the MPE, < 65 years Physical or mental incapacity 40% of the MPE, > 65 years N N N N New Brunswick N Physical or mental incapacity (40% of the MPE) 1.06 X (65 years age) N Holder is a foreign national Max. = 3 times the normal withdrawal plus the regular withdrawal and 25% of the balance of funds N Nova Scotia 40% of the MPE, < 65 years Physical or mental incapacity 40% of the MPE, > 65 years N N N N Nunavut** N Physical or mental disability (case by case) N N N N N Ontario N Physical or mental disability, life expectancy < 2 years 40% of the MPE, > 55 years Surplus transferred > ceiling provided by the Income Tax Act (federal) N N Admissible financial problems Quebec 40% of the MPE, < 65 years Physical or mental disability, < 69 years (LIRA only) 40% of the MPE, > 65 years N Holder no longer resides in Canada (for at least 2 years) N N Saskatchewan N Physical or mental incapacity N N N N N Newfoundland/Labrador < 65 years, temporary income max. = 40% MPE total pension income Physical or mental incapacity 10% MPE or 40% MPE, 55 years or pension eligibility (first to occur) N N N N Northwest Territories** N Physical or mental disability (case by case) Yukon** N Physical or mental disability (case by case) N N N N N N N N N N * Refer to section A.2 for details of conditions. ** These provinces/territories use the 1985 Pension Benefits Standards Act (federal) in the absence of provincial legislation. May

20 ECOFLEX INVESTMENTS A.2 Details of the Conditions for Withdrawals from Locked-in Funds A.2.1 Alberta Reduced life expectancy: A withdrawal can be made from locked-in funds for people whose life expectancy is considerably reduced due to a physical or mental incapacity. A medical certificate is required. The spouse must also waive his/her rights. Percentage of the MPE (maximum pensionable earnings): The payment of a lumpsum amount equal to the total value of the LIRA can be made for two reasons: - if the value of the said contract does not exceed 20% of the MPE for the calendar year in which the withdrawal is made; or - if the holder was under age 65 at the end of the tax year preceding the withdrawal and the value of all locked-in funds does not exceed 40% of the current year s MPE. Residency outside Canada: The payment of a lump-sum amount equal to the value of the LIRA can be made if the holder no longer resides in Canada. Conversion of the locked-in funds into an annuity at age 80: No obligation for this province. A.2.2 British Columbia Reduced life expectancy: A withdrawal can be made from locked-in funds for people whose life expectancy is considerably reduced due to a physical or mental incapacity. A medical certificate is required. The spouse must also waive his/her rights. Percentage of the MPE (maximum pensionable earnings): The payment of a lumpsum amount equal to the total value of the LIRA can be made for two reasons: - if the value of the said contract does not exceed 20% of the MPE for the calendar year in which the withdrawal is made; or - if the holder was under age 65 at the end of the tax year preceding the withdrawal and the value of all locked-in funds does not exceed 40% of the current year s MPE. Residency outside Canada: The payment of a lump-sum amount equal to the value of the LIRA can be made if the holder no longer resides in Canada. Conversion of the locked-in funds into an annuity at age 80: No obligation for this province. A.2.3 Prince Edward Island* In reference to the 1985 Regulation on the Pension Benefits Standards Act (federal). Reduced life expectancy: If a physician certifies that the holder s life expectancy is likely to be considerably reduced due to a mental or physical disability, it is possible for the locked-in registered retirement savings plan to provide for the payment of funds to the holder and an overall amount. The spouse must also waive his/her rights. May

21 ECOFLEX INVESTMENTS Conversion of the locked-in funds into an annuity at age 80: Mandatory for this province. A.2.4 Manitoba Temporary income: It is possible to withdraw an additional amount from a LIF that offers the option for people between 54 and 65 years of age. This amount cannot exceed 40% of the maximum pensionable earnings (MPE) of the year in which the withdrawal is made. The amounts cashed in are taxable. Reduced life expectancy: A withdrawal can be made from locked-in funds for people whose life expectancy is considerably reduced due to a physical or mental incapacity. A medical certificate is required. The spouse must also waive his/her rights. Percentage of the MPE: People aged 65 and older can withdraw the balance of their locked-in RRSP, LIRA, LIF or locked-in RRIF if the total amounts accumulated in these retirement saving products doe not exceed 40% of the current year s MPE. Conversion of the locked-in funds into an annuity at age 80: No obligation for this province. A.2.5 New Brunswick Reduced life expectancy: A withdrawal can be made from locked-in funds for people whose life expectancy is considerably reduced due to a physical or mental incapacity. A medical certificate is required. The spouse must also waive his/her rights Single withdrawal: It is possible to withdraw additional funds from a LIF. The maximum amount is equal to three times the maximum amount normally permitted for the year, in addition to the regular withdrawal, without however exceeding 25% of this balance. Only one withdrawal can be made during an individual s life. If the amount withdrawn is lower than the eligible maximum, the difference cannot be withdrawn later. Percentage of the MPE: People can withdraw the balance of their LIRA/LIF if the total amounts accumulated in retirement savings products (LIRA, LIF, locked-in RRIF, defined contribution pension plan) do not exceed 40% of the current year s MPE, divided by 1.06 for each year needed by the participant who terminates his employment or retires to reach age 65. Residence outside Canada: To be able to draw benefits from a pension plan, a LIRA or a LIF, the participant or contract holder and his/her spouse, if any, must not be Canadian citizens and cannot reside in Canada for purposes of the Income Tax Act. Conversion of the locked-in funds into an annuity at age 80: No obligation for this province. However, the funds must be depleted by age 90. A.2.6 Nova Scotia May

22 ECOFLEX INVESTMENTS Temporary income: It is possible to withdraw an additional amount from a LIF that offers the option for people between 54 and 65 years of age. This amount cannot exceed 40% of the maximum pensionable earnings (MPE) of the year in which the withdrawal is made. The amounts withdrawn are taxable. Reduced life expectancy: A withdrawal can be made from locked-in funds for people whose life expectancy is considerably reduced due to a physical or mental incapacity. A medical certificate is required. The spouse must also waive his/her rights. Conversion of the locked-in funds into an annuity at age 80: No obligation for this province. A.2.7 Nunavut* In reference to the 1985 Regulation on the Pension Benefits Standards Act (federal). Reduced life expectancy: If a physician certifies that the holder s life expectancy is likely to be considerably reduced due to a mental or physical disability, it is possible for the locked-in registered retirement savings plan to provide for the payment of funds to the holder in an overall amount. The spouse must also waive his/her rights. Conversion of the locked-in funds into an annuity at age 80: Mandatory for this territory. A.2.8 Ontario Reduced life expectancy: A total or partial withdrawal of funds held in a LIRA, a LIF or a LRIF is possible for people who suffer from an illness or physical disability that in all likelihood reduces their life expectancy to less than two years. A medical certificate is required. The spouse must also waive his/her rights. Percentage of the MPE: People under age 55 and whose total assets held in all LIRAs, all LIFs or in all LRIFs in Ontario are worth less than 40% of the current year s MPE can withdraw the total funds contained in these LIRAs, LIFs and LRIFs. Surplus transfer: If the amount transferred from an old retirement plan to a LIRA, a LIF or a LRIF exceeds the ceiling under the federal Income Tax Act, the excess amount can be withdrawn. Financial problems: It is possible to withdraw an amount from a LIRA, a LIF or a LRIF due to financial problems. There are seven types of financial problem that allow for a withdrawal: withdrawal due to low income, withdrawal for a debt attached to a primary residence, withdrawal for unpaid rent, withdrawal for the first and last month s rent withdrawal for medical expenses, withdrawal for renovations of a primary residence due to illness or physical incapacity, withdrawal for renovations of the primary residence of a person stricken with an illness or physical incapacity. Conversion of the locked-in funds into an annuity at age 80: Mandatory for this province. May

23 ECOFLEX INVESTMENTS A.2.9 Quebec Temporary income: It is possible to withdraw an additional amount from a LIF that offers the option for people under age 65. This amount cannot exceed 40% of the maximum pensionable earnings (MPE) of the year in which the withdrawal is made. The amounts withdrawn are taxable. There is no minimum age that restricts access to a temporary income. People under age 54 must absolutely receive the temporary income to which they are entitled monthly and this income is reduced by 75% of the individual s other income. Reduced life expectancy: A total or partial withdrawal is possible for people whose life expectancy is reduced by a physical or mental disability and who are under age 69 (for LIRAs only). A medical certificate is required. The spouse must also waive his/her rights. Percentage of the MPE: People aged 65 and over can withdraw the balance of their LIRA/LIF if the total amounts accumulated in these retirement savings products (LIRA, LIF, locked-in RRSP, defined contribution pension plan) does not exceed 40% of the current year s MPE. Residence outside Canada: In cases where the individual has been living outside Canada for at least two years, there is a possibility to withdraw the entire account, except for guaranteed investments that have not matured. Conversion of the locked-in funds into an annuity at age 80: No obligation for this province. A.2.10 Saskatchewan Reduced life expectancy: A withdrawal can be made from locked-in funds for people whose life expectancy is considerably reduced due to a physical or mental incapacity. A medical certificate is required. The spouse must also waive his/her rights. Percentage of the MPE: A plan must ensure a person who is entitled to it, the payment of an annuity for an amount equal to the capitalized value of the annuity to which the person is entitled if: the current value of the future payments does not exceed 4% of the current year s MPE or the annual pension does not exceed 2% of the MPE. In such a case, the funds are never considered to be locked-in. Conversion of the locked-in funds into an annuity at age 80: No obligation for this province. May

24 ECOFLEX INVESTMENTS A.2.11 Newfoundland/Labrador Temporary income: It is possible to obtain an additional temporary income from a LIF if the total pension income is lower than 40% of the MPE and the contractholder is under age 65. The maximum temporary income authorized is equal to 40% of the current year s MPE less the total pension income from all retirement income products, except for the income from the Canada Pension Plan. Reduced life expectancy: A withdrawal can be made from locked-in funds for people whose life expectancy is considerably reduced due to a physical or mental incapacity. A medical certificate is required. The spouse must also waive his/her rights. Percentage of the MPE: It is possible to withdraw all locked-in funds from a LIRA if the total amounts accumulated in retirement savings products (LIRA, LIF, locked-in RRIF) is lower than 10% of the current year s MPE or, for contractholders age 55 or eligible to receive a pension from the plan that is the source of the funds (whichever comes first), if the total amounts accumulated in retirement savings does not exceed 40% of the current year s MPE. Conversion of the locked-in funds into an annuity at age 80: Mandatory for this province. A.2.12 Northwest Territories* In reference to the 1985 Regulation on the Pension Benefits Standards Act (federal). Reduced life expectancy: If a physician certifies that the holder s life expectancy is likely to be considerably reduced due to a mental or physical disability, it is possible for the locked-in registered retirement savings plan to provide for the payment of funds to the holder and an overall amount. The spouse must also waive his/her rights. Conversion of the locked-in funds into an annuity at age 80: Mandatory for this territory. A.2.13 Yukon* In reference to the 1985 Regulation on the Pension Benefits Standards Act (federal). Reduced life expectancy: If a physician certifies that the holder s life expectancy is likely to be considerably reduced due to a mental or physical disability, it is possible for the locked-in registered retirement savings plan to provide for the payment of funds to the holder and an overall amount. The spouse must also waive his/her rights. Conversion of the locked-in funds into an annuity at age 80: Mandatory for this territory. May