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Be aware of new pension rules as additional options become available

Each year the federal budget brings about changes to Canadians and their pension plans. If you have a federal pension plan or money in a locked in RRSP or Life Income Fund (LIF) from a federal pension plan, then you may want to read up on the new rules.

The federal government wanted to increase the option choices available to holders of federally regulated Life Income Funds (LIFs) and locked in RRSPs with regard to unlocking their funds. These amendments are effective May 8, 2008.

The three new choices , which are now available, are:

1. One-time, 50 per cent unlocking: Individuals 55 or older will be entitled to a one-time conversion of up to 50 per cent of LIF holdings into an unlocked tax-deferred savings vehicle. Subject to the transitional provisions, LIF contracts entered into after May 8, 2008 must include the option of permitting funds in a LIF to be transferred into a new type of locked-in retirement investment fund called a Restricted Life Income Fund (RLIF).

2. Small balance unlocking: Individuals 55 or older with small total holdings in federally regulated locked-in funds of up to $22,450 will be able to wind up their LIFs or convert them to an unlocked tax-deferred savings vehicle. And yes another acronym. A new option called the RLSP Restricted Locked in Retirement savings plan will also be made available. LIFs, locked-in RRSPs, RLIFs and RLSPs are less than the small balance limit of 50 per cent of Yearly Maximum Pensionable Earnings — in 2008, this 50 per cent limit stands at $22,450 — to transfer all the funds into a tax-deferred plan with no maximum annual withdrawal limit (that is, either an RRSP or an RRIF), or to withdraw these funds as cash.

3. Financial hardship unlocking: Individuals facing financial hardship (that is, low income, or high disability or medical-related costs) will be entitled to withdraw up to $22,450 per calendar year. Individuals who meet conditions for financial hardship set forth by the new rules to withdraw as cash an amount up to 50 per cent of Yearly Maximum Pensionable Earnings (YMPE) — in 2008, this 50 per cent limit stands at $22,450 — from any combination of federally regulated LIFs, locked-in RRSPs, RLIFs or RLSPs, within a calendar year, as long as all withdrawals are done within 30 days.

I know it all sounds confusing.

I tried to make it as simple as possible. Check with your financial advisor on how you may benefit by the new rules.

Prepared by: Grant W. Hicks C.I.M., FCSI, retirement planning specialist with Hicks Financial. Information provided is not a solicitation and although obtained from sources considered reliable, is not guaranteed. The views and opinions contained in this article are those of Grant W. Hicks. For comments or free consultation, Grant can be reached in Parksville at 954-0247 or 1-866-954-0247. E-mail: grant@ghicks.com. Web: www.ghicks.com.

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