Proposed regulation for greater flexibility in the use of retirement savings in Quebec

On December 27, 2023, the Quebec government published proposed regulation amending the Regulation respecting supplemental pension plans (Proposed Regulation)¹, intended to offer greater flexibility in the use of retirement savings as of age 55. This flexibility may be interesting for individuals who wish to make larger withdrawals in the early years of their retirement so they can defer government pensions.

A registered retirement income fund (RRIF) is a decumulation vehicle for amounts accumulated in an RRSP. The minimum annual withdrawal amount is set in accordance with applicable legislation.

A life income fund (LIF) is a decumulation vehicle used for sums accumulated in a locked-in retirement account (LIRA), i.e., sums that initially come from a supplemental pension plan. This vehicle is subject to the same minimum annual withdrawal amount as the RRIF, without exceeding the maximum amount authorized by law. A LIF is bound by certain provisions of the Supplemental Pension Plans Act, including spousal protection upon a plan member’s death.

The Proposed Regulation sets out new terms for withdrawal that would apply to LIFs and defined contribution (DC) pension plans offering variable benefits, which differ according to an individual’s age.

Individuals age 55 and older

Individuals 55 years and older with a LIF or a DC plan offering variable benefits would no longer be subject to the maximum annual withdrawal constraint. These individuals could therefore apply at any time to receive all or part of the amounts held in their LIF, provided they pay the tax on the full amount withdrawn.

Individuals under age 55

The rules for maximum withdrawals from LIFs (or DC plans offering variable benefits) for individuals under age 55 would be modified, allowing most of them to withdraw a higher amount annually than the current maximum withdrawal amount.

Transfer from a LIF (or DC plan offering variable benefits) to an RRSP or RRIF

It would no longer be possible for an individual to transfer amounts from a LIF (or DC plan offering variable benefits) to an RRSP or RRIF. One of the objectives of the proposed amendment is to protect a spouse’s priority entitlement in the event of death: a distinctive feature of the LIF.

Defined contribution (DC) plan sponsors

Should the Proposed Regulation be adopted, it will be important for sponsors of DC plans offering variable benefits to adjust their annual statements to incorporate the new required elements. Sponsors of DC plans offering variable benefits would be required to provide plan members with an annual estimate of the annuity that could be paid to them up to age 95. In addition, it will be important to make members aware of how higher withdrawals could impact their retirement savings.

Sponsors of DC plans not offering variable benefits are not directly affected by the Proposed Regulation but may wish to assess the possibility of offering variable benefits under their plan.

Defined benefit (DB) plan sponsors

Few DB plans currently offer members age 55 and older the option of transferring the value of their entitlements out of the plan. For plans that offer it, members age 55 and older who transfer the value of their entitlements into a LIF would be able to use the full amount immediately rather than receive a life annuity.

DB plan sponsors may wish to re-evaluate the option of offering transfer value after age 55, both for active members at retirement and for members entitled to a deferred pension.

The proposed changes would offer greater disbursement flexibility at retirement for individuals age 55 and older. Increased flexibility would involve a higher level of responsibility for members, who would have to better manage longevity risk—the risk of depleting savings before death.

However, the proposed amendments include additional disclosure requirements for financial institutions offering LIFs and for sponsors of DC plans offering variable benefits that would guide plan members in determining the amount of potential withdrawals. They would be required to evaluate and provide members with an annual estimate of their potential annuity payments up to age 95, to help them manage their retirement savings.

Finally, following the changes to the Québec Pension Plan (QPP) that came into effect January 1, 2024, raising the maximum age at which an individual can apply for a pension to 72, the proposed amendments covered here are positive for individuals who wish to defer their government pensions and make greater use of their savings from a LIF or DC plan offering variable benefits in the early years of their retirement.

Overall, we consider that the proposed changes would, in most cases, offer greater flexibility to individuals, particularly by providing new options for decumulation at retirement.

Should this Proposed Regulation be adopted, the amendments will come into force on July 1, 2024, for provisions relating to individuals age 55 and older, and on January 1, 2025, for provisions relating to individuals under age 55.

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¹ This Proposed Regulation is a direct result of the spring 2023 adoption of the Act respecting the implementation of certain provisions of the Budget Speech of 22 March 2022 and amending other legislative provisions, which included certain amendments to the Supplemental Pension Plans Act to allow flexibility in the use of certain amounts starting at age 55.

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