This is BIG!
Until recently, when you left an employer-sponsored pension plan and transferred the value to your own investment account, under Manitoba legislation you were required to roll those pension proceeds into a locked-in retirement account (LIRA) or a life-income fund (LIF). When you started to withdraw income, you had to withdraw a minimum but were also restricted to a maximum amount each year.
New rules pertaining to unlocking pension funds came into effect in Manitoba on October 1, 2021. The changes will give you much more flexibility in how you manage your retirement income.
- If you are 65 or older, you will now be able to fully unlock your funds (100%) in your LIF or LIRA by transferring them to your registered retirement income fund (RRIF) or registered retirement savings plan (RRSP). Once your locked-in funds are moved into your RRIF, there are no more maximums. Having just one retirement account means no more jockeying funds around accounts to meet your income stream requirements. This is a much more streamlined and straightforward approach.
- Couples who are separating may now split pension assets based on circumstances as opposed to the previous mandated 50/50 split or no division. This will give greater flexibility in the design of separation and divorce agreements.
- During times of severe financial hardship (for example, a pandemic makes it difficult for you to pay your mortgage and foreclosure is on the horizon), you can now access the funds in your locked-in pension accounts.
- The Manitoba government has also modified the approval process (less red tape) for the one-time unlocking of 50% of locked-in pension funds for those who are at least 55.
There are many advantages to rolling your LIF into your RRIF:
- fewer accounts to monitor,
- easier portfolio management (asset allocation and rebalancing),
- less complication when determining your retirement income stream (no more LIF maximum to contend with),
- streamlined tax planning and one tax receipt to chase down rather than 2.
In most situations, if you have a LIF account and are over 65, we will be recommending that you take advantage of Manitoba’s new unlocking provisions. There are specific administrative steps to be taken. We are finalizing our procedures and will be in touch.
If you would like to discuss implementing any of these changes, please contact us.
The information in this commentary is for informational purposes only and not meant to be personalized financial planning advice. The content has been prepared by the team at Fraser & Partners from sources believed to be accurate.