Income Master RRIF/LIF (Insurance GIC*)

Target client profile:
Income Master is an excellent choice as part of a client's retirement income plan. Typically, clients at this stage in life are looking to generate a steady stream of retirement income and want the peace of mind that comes with owning a guaranteed interest investment. Income Master is geared to this type of client.

Selling features:
Easily converted from a Superflex, Income Master provides income to your clients, while the remaining investment continues to grow at a guaranteed rate of interest. Terms of up to 25 years are available.

Overview

Product features
  • Income Master is available for the following registration types:
    • Registered Retirement Income Fund (RRIF),
    • Life Income Fund (LIF) or
    • Restricted Life Income Fund (RLIF).
  • The policy is only available in compound interest.
  • A daily interest investment is available.
  • Guaranteed interest investments
    • Available terms are from 1 to 25 years.
    • Minimums are:
      • policy set up $5,000
      • $1,000 per guaranteed investment
    • Auto Ladder feature available
  • Income payment types include annual minimum, annual maximum (applicable to locked-in funds only), level, no income and interest only - subject to legislative minimum payment requirements.
  • Scheduled income payments are pro-rated across all terms.
  • Income frequency can be monthly, quarterly, semi-annually or annually.
  • The owner and the annuitant must be the same person.
  • Interest rates are guaranteed for 45 days.
  • Rates will be interpolated for Client Selected End Dates.
  • There are no up-front or annual fees. All the money earns interest immediately.
  • With proper beneficiary designation money may be exempt from seizure by creditors.
  • Protected through Assuris

Interest and investments

Interest

Money can be invested in:

  • a daily interest investment and/or
  • guaranteed interest investments (minimum investment $1,000)

All guaranteed interest investments within the Income Master RRIF are compound interest investments

Interest
  • Interest rates are expressed as a rate per year compounded annually.
  • Interest is calculated and added to the value of the investment each day; the combined sum continues to earn the same rate as the original principal for the duration of the guaranteed investment.
When a guaranteed interest investment ends, it will automatically roll to the same term. Requests to re-invest differently or withdraw funds must be received prior to maturity.
Client-selected end dates

Client-selected end dates (CSED), available on all Sun Life guaranteed interest products available for sale, allow clients to select the end dates on their guaranteed interest investments. Having this option increases our competitiveness by spreading out both the workload and flow of funds to invest. This, in turn, helps you attract more clients and retain the ones you have. It can also spread your workload throughout the year.

Client-selected end dates give clients flexibility and control over their money by allowing them to:

  • plan future guaranteed interest investments to roll over at the same time as existing investments, so they can take advantage of large case rate enhancements.
  • choose an end date that suits their needs (planning for an upcoming large purchase, a vacation etc.).
  • choose any length of investment as follows:
    • GICs - between 30 days and 5 years
    • RRIF registrations - between 1 and 25 years
    • Superflex annuity - between 1 and 10 years

Interest rates will be interpolated. Interpolation is calculated to the nearest .01%.

The formula for interpolation is RATE = R1 + (#days/365) x (R2-R1) where:

  • R1 = rate for the next lowest even year
  • R2 = rate for the next highest even year
  • #days = number of days into the non-even year
Investment options

There are 3 types of investment options available to your clients:

  • Daily interest investment
  • Guaranteed interest investments
  • Auto ladder
Daily interest investment
Interest
  • The interest rate can fluctuate daily.
  • Interest begins when we receive the application and the money.
  • Interest is calculated and credited daily to the balance of the investment.

Note: Rate enhancement levels do not apply to daily interest.

Advantages
  • Money can be deposited or withdrawn at any time.
  • The money is accessible with no market value adjustment (MVA).
  • Deposits can be made by:
  • Pre-authorized chequing (PAC) (not available on GIC products),
  • cheque,
  • external transfer, or
  • any combination of these.
  • Once $1,000 has accumulated in the daily interest investment, a client may choose to transfer the money into a guaranteed interest investment.
  • Minimum investments for daily interest investment If PAC is set up, the minimum PAC amount is $50 per month.
  • If PAC is not set up, the minimum amount required to open a Superflex accumulation annuity or GIC product is $250.
  • The minimum required to open a guaranteed interest product with RIF registration is $5000.

Note: The minimum opening investment should always be paid with application except in the case of an external transfer.

Guaranteed interest investments
  • The interest rate is guaranteed for a specific term.
  • The minimum amount required to establish a guaranteed interest investment is $1,000.
  • Interest is calculated from the date the guaranteed interest investment is established.
Advantages

The client can have several guaranteed interest investments all within the same plan. With the exception of GICs with RIF registration a client can have an unlimited amount of investments in one contract - in any or all of the terms available. GIC RRIFs are limited to 5 investments.

Note: GIC products only allow one interest type per plan (i.e. all compound or all annual interest).

The interest rate is guaranteed for any period between:

  • 1 and 5 years for GIC products (short term investments, less than 1 year, are also available on GIC products)
  • 1 and 10 years for Superflex accumulation annuity
  • 1 and 25 years for all products with RIF registration

This means the client can select:

  • a certain term or (e.g. 19 months, 3 years, etc.)
  • If a certain term is selected, the investment will mature at the end of the selected number of years/months.
  • a specific end date (e.g. October 15, 2016, July 20, 2017, etc.)
  • If a specific end date is selected, the investment will mature on that specific date.

With the exception of the Sun GIC Max, money can be withdrawn before the end of a guaranteed interest investment, but may have a market value adjustment (MVA).

At the end of the Superflex/Income Master accumulation annuity or GIC/Sun GIC Max guaranteed interest investment term, the client can:

  • withdraw their money,
  • reinvest their money in a new guaranteed interest investment at the then current interest rate for the selected term,
  • leave their money in the daily interest investment.

If the client has their money in the following, the money automatically reinvests based on the posted rate available for that product for the same term, unless investment instructions are provided before the investment matures:

  • Guaranteed Investment Certificate (GIC) for a short term investment (i.e. 30 days - 270 days),
  • Sun GIC Max for short term investment (i.e. 30 days - 270 days),
  • Superflex/Income Master annuity.

If the client has their money in the following, we credit the money to the daily interest investment at maturity, unless investment instructions are provided before the investment matures:

  • long-term Sun GIC Max
  • long-term Guaranteed Investment Certificate (GIC)

Note: Prior to maturity, notices will be mailed to clients and maturity instructions can be provided up to 45 days before the investment matures.

Auto ladder (Superflex/Income Master only)
  • The interest rate is guaranteed for each specific term.
  • The minimum amount required to establish an auto ladder is $5,000.
  • The investment is split equally between each of the 1 to 5 year guaranteed interest investment terms.
  • Interest is calculated from the date the auto ladder is established.
  • The client will have 5 guaranteed interest investments all within the same plan.
  • As each guaranteed interest investment term matures, the balance will be automatically invested in a new 5-year guaranteed interest investment at the then current posted interest rate.
  • A confirmation notice will automatically be sent out when the new guaranteed interest investment has been made.

More information

Rate commitments
Rate commitments
Interpolated rates for guaranteed interest products

We "interpolate" interest rates for investment terms that lie between whole years. This interpolation will be calculated to the nearest .01%.

The formula for the interpolation is RATE = R1 + (#days/365) x (R2-R1) where:

  • R1 = rate for the next lowest even year
  • R2 = rate for the next highest even year
  • #days = number of days into the non-even year

e.g. If the 2-year rate is 5% and 3-year rate is 6%, then the rate for 2 years and 8 days (time between start date and end date) is: 5% + (8/365) x (6% - 5%) = 5.021918% so that client would receive 5.02%.

Note: For short-term GIC products, #days/365 in the above formula becomes the #days beyond the lower term for which a rate is stated divided by the number of days between the lower and higher terms (e.g. for a 35-day rate, use (35-30)/(60-30)).

The method of determining the start date remains unchanged:

  • with fund commitment - date of commitment
  • without fund commitment - date funds and/or forms are received at head office

General information

Required minimums
Superflex accumulation annuity (Insurance GIC)
  • $1,000 for guaranteed investments (compound and annual interest)
  • $5,000 for annual and monthly interest payout guaranteed investments
  • $250 for daily interest investment
  • Pre-authorized chequing (PAC) available into daily interest - $50 monthly (not available on LIRA or locked-in RRSP)
  • Income master RRIF
    • Initial policy minimum $5,000
    • No pre-authorized chequing (PAC)
    • Payment minimum - If the full amount of the legislated minimum has not been met, the balance will be paid out December 31 each year
Minimum age requirement to purchase accumulation annuities (Insurance GIC)
  • RRSP /RRIF/TFSA: age 18
  • Non-registered: age 16 (in Quebec, age 18)
Sun GIC Max (Trust GIC, non-redeemable) / Guaranteed Investment Certificate (Trust GIC, redeemable)
  • $1,000 for guaranteed investments
  • $250 for daily interest investment
  • No pre-authorized chequing (PAC)
  • Short term investments are available (< 1 yr)
  • RRIF registration
    • Initial policy minimum $5,000
    • Payment minimum - If the full amount of the legislated minimum has not been met, the balance will be paid out December 31 each year
Minimum age requirements to purchase Sun Life Trust GIC products (all registration types)
Province Age (years)

British Columbia

19

Alberta

18

Saskatchewan

18

Manitoba

18

Ontario

18

Quebec

18

New Brunswick

19

Prince Edward Island

18

Nova Scotia

19

Newfoundland and Labrador

19

Yukon Territory

19

Northwest Territory

19

Nunavut

19

Withdrawals and transfers
  • A client may request an unscheduled payment at any time, subject to a possible MVA. Currently, the unscheduled payment minimum is $500.
  • The funds in an investment may be withdrawn and transferred to open a new investment at any time. The amount transferred must meet the minimum required to open the new investment. The transfer may be subject to an MVA.
  • The first unscheduled withdrawal, of up to 10%, each calendar year is not subject to MVA. However as a result, the remaining investment cannot be exhausted prior to maturity.
  • Withdrawals may affect the selected payment schedule.
Policies issued before December 2009
Introduction

A Registered Retirement Income Fund (RRIF) takes the savings of an RRSP and turns that into an income that is spread over the owner’s retirement. The owner is required to take a minimum amount of income each year. The money left in the policy remains invested.

The Income Master RRIF contains two separate account structures to which premiums may be directed - Income Builder and Income Provider.

Income Builder

Capital is deposited and maintained in the account, and is primarily intended for the continued accumulation of assets and tax deferral. For example, a client may not need any retirement income from their RRIF. Once the annual minimum is paid, they may choose to invest their funds in one of the short term accounts in the Income Builder.

Income Provider

This account is more flexible; it can provide a customized payment stream that allows for the reduction of capital. Under this structure there are more investment options and flexibility in structuring retirement income. For example, a client may choose to accumulate a portion of their funds in a Builder account and invest the remainder in a Provider account with an income stream that suits their needs today. As their income needs grow they will ultimately invest the funds from the Income Builder account into the Income Provider accounts.

Payments from RRIFs
Minimum Annual Payment

RRIF legislation requires that a minimum dollar amount must be withdrawn each year except for the year in which the plan is established. Prior to the owner’s 71st birthday, the minimum amount is a fraction of the fair market value of the RRIF at the beginning of the year (fair market value divided by 90 minus the age elected by the owner). At age 71 and after, the minimum amount is determined by multiplying the fair market value of the RRIF by a prescribed factor (based on the age of the owner or the owner’s spouse) at the beginning of the year.

On January 1, 1993 the Income Tax Act of Canada introduced new RRIF minimums. Prior to January 1, 1993 the funds in a RRIF would be depleted by age 90. However, the new minimums meant that a RRIF would now provide a lifetime minimum income payment. The minimum percentage for a qualifying RRIF (issued prior to January 1, 1993) differs from those for a RRIF purchased on or after January 1, 1993. The annual minimum for a qualifying RRIF is lower between the ages of 71 and 78. By age 78, the minimums for both RRIFs are exactly the same.

The owner can elect to use their spouse’s age at the beginning of a year to determine the minimum amount. Once this is elected, the RRIF owner cannot switch back to his or her own age at a later date. This choice can only be made at the time the RRIF is established.

Amounts in excess of the minimum may be withdrawn from the plan in any year, but the amounts are subject to withholding tax. There is no limit on the excess amount that can be withdrawn. Scheduled payments are not subject to a Market Value Adjustment (MVA).

If the minimum annual payment for that year has not been paid by the end of that year, we will make a payment that meets the required minimum from the policy value.

General investment and scheduled payment information
  Builder account Provider account
Account types
  • Daily interest
  • 1 year terms for annual interest
  • 2-10 year terms for compound interest
  • 1-35 year terms for compound interest
  • 5-35 year terms at issue
  • 1-4 year terms at renewal
Scheduled payment
  • Interest and principle are withdrawn proportionately from all of the investments
  •    One schedule for all investments
  • Minimum payment per schedule is $50, payable by EFT or annually by cheque
  • Each investment has it’s own payment schedule
  • Minimum payment per schedule is $50, payable by EFT or annually by cheque
Scheduled payment types
  • Minimum annual payment
  • Interest payment
  • Specified level payment- amount must be between the minimum annual amount and the interest earned
  • No scheduled payment- payment is made at year end if required
  • Minimum annual payment
  • Interest payment
  • Specified level payment- may be indexed, may change maturity depending on interest rates at renewal
  • Specified payout period- may be indexed, may change at m ay change maturity depending on interest rates at renewal
Payment frequency
  • Monthly, quarterly, semi-annually or annually
  • Can select any date from the 1st to the 31st
  • Can request a change once per calendar year; it will not be effective until the following calendar year
  • Monthly, quarterly, semi-annually or annually
  • Can select any date from the 1st to the 31st
  • Can request a change once per calendar year; it will not be effective until the following calendar year
Changes to payment type
  • May be requested at any time and will be effective at the date of request; must fall within the 15% guideline described below
  • May be requested at any time and will be effective at renewal (if the change is to be effective immediately, the investment will be closed, an MVA applies, and a new investment will be opened)
Changes to payment amount
  • The payment can be increased or decreased 15% once per year provided it does not deplete the investment before maturity
  • The payment can be increased or decreased 15% once per year provided it does not deplete the investment before maturity
Subsequent deposits

Subsequent deposits must come from registered money, subject to Sun Life Assurance Company of Canada limits, and may be added at any time. The minimum for a guaranteed investment into an Income Builder account is $1,000. The minimum investment into an Income Provider account is $10,000.

Interest

Interest rates are subject to change at any time as dictated by market conditions. The interest rate assigned to a guaranteed investment will be the rate in effect on the date of the rate guarantee. A rate guarantee may be used to guarantee the current interest rate for 45 days.

The rate enhancement process incorporates four different rate enhancement levels with defined rate enhancements and associated reductions in commission. Additional large case rate enhancements may be available if the following large case enhancement criteria is met:

  • a single deposit of $25,000 or more

Large case rate enhancements pay a commission of 10 basis point per year of term. Special enhancements may be requested using the process that is indicated in the document Processing Tips for Sun Life Guaranteed Products located on your advisor site.

The following table outlines the commission that will be paid based on the enhancement levels and length of term for the investment.

Rate enhancement level Rate enhancement Commission reduction
1 0.00% 0.00%
2 0.15% 0.05%
3 0.25% 0.10%
4 0.35% 0.15%
Large case Minimum of 0.45%
(can be higher)
0.20%
Commission paid for term of:
Rate enhancement level 1 year 2 years 3 years 4 years 5 years 6 years 7 years 8 years 9 years 10 years
1 0.30% 0.60% 0.90% 1.20% 1.50% 1.60% 1.70% 1.80% 1.90% 2.00%
2 0.25% 0.50% 0.75% 1.00% 1.25% 1.35% 1.45% 1.55% 1.65% 1.75%
3 0.20% 0.40% 0.60% 0.80% 1.00% 1.10% 1.20% 1.30% 1.40% 1.50%
4 0.15% 0.30% 0.45% 0.60% 0.75% 0.85% 0.95% 1.05% 1.15% 1.25%
Large case 0.10% 0.20% 0.30% 0.40% 0.50% 0.60% 0.70% 0.80% 0.90% 1.00%
Policy value

The policy value on any date will be the total amount in all investments on that date, including accrued interest.

If the policy value is less than $500 at any time, we may pay the policy value to the client, subject to the MVA calculation, and thereby terminate the policy.

Investment maturities

Money in any guaranteed investment will renew automatically at the maturity date, into a new investment with the same term, except if the new term exceeds the age limits and/or payout period. If so, the funds will be directed to an investment of the longest term available. At age 85, funds are then placed into a 5-year term.

On or before the maturity, the owner may advise us to direct the funds into an investment of a different term. Instructions received after the maturity will incur an MVA.

All investment requests for different terms require that a RRIF illustration be completed to ensure all new terms do not exceed the age limits and/or the payout period requested.

Annuity benefit

At any time, the owner may elect to transfer all or part of their Income Master RRIF policy to a payout annuity, subject to an MVA if applicable.

The type of payout annuity chosen is subject to those available, based on tax status and the client’s age at the time of purchase.

Death benefit

The policy owner may choose for the spouse to receive continuation of annuity payments or a lump sum.

Designating a spouse to receive continuation of payments will make the spouse a successor annuitant. A successor annuitant takes over all ownership rights of the policy. They control the funds and may designate beneficiaries. However, there can be no changes in the life whose age has been designated to calculate the minimum annual payment. Upon entering a legal or common-law marriage, the successor annuitant may name the new spouse as successor annuitant to the policy.

Naming a spouse as the recipient of a lump sum enables the surviving spouse to transfer the lump sum to his/her RRSP or RRIF and have full control of the policy.

A person other than the spouse can only be named to receive a lump sum. A lump sum death benefit is the policy value at the date of death after the full minimum annual payment for the year of the death has been paid. The MVA calculation will not apply.

Upon death of all payees if no designation has been made, the death benefit will be paid to the estate of the last survivor of the payees. Designation of a payee on the death of the owner can be made either in the application or in the owner’s will.

Withdrawals and transfers

A client may request an unscheduled payment at any time, subject to an MVA. Currently, the unscheduled payment minimum is $500.

The funds in an investment may be withdrawn and transferred to open a new investment at any time. The amount transferred must meet the minimum required to open the new investment. Any transfer is subject to an MVA.
The client MUST select either the Builder account or the specific Provider investment from which the withdrawal is to be made. All withdrawals from the Builder account will be withdrawn from both the interest and principal portion of each of the investments, in proportion to the value of that investment on the payment date.

Once per calendar year, withdrawals of up to 5% of the policy balance can be made and are not subject to MVA, provided the withdrawal does not deplete the investment prior to maturity.

Withdrawals may affect the selected payment schedule.

Market Value Adjustment (MVA)

If a guaranteed investment is terminated before maturity, the investment is subject to an MVA. No MVA applies to withdrawals from the Daily Interest Account. The amount of an MVA is the difference between the accumulated value and the cash surrender value.

One of the least understood concepts is the MVA. Understanding how and why the MVA works is something you can use effectively to your advantage.

Why are MVAs necessary?

Financial institutions offering guaranteed investments are at an investment risk and suffer expense losses on early termination of these investments. Therefore, MVAs are necessary to ensure money is not lost.

When do MVAs occur?

Whenever funds are surrendered from a guaranteed investment prior to the investment’s end date.

Are MVAs unique to Sun Life Financial?

No. All financial institutions use adjustments of various sorts. It’s important your clients consider these adjustments when comparing the guaranteed investments of financial institutions.

How can you best deal with MVAs?

Don’t let your clients put money into a guaranteed investment for a period extending beyond the foreseeable time that money will be needed.

How are MVAs calculated?

There are three parts to our MVA:

  • Investment adjustment to offset our investment risk
  • The objective of the investment adjustment is to compensate for current interest rates being different than the contract rate. The net result is the client neither gains nor loses from a withdrawal which subsequently reinvested at current rates. We must cash in the investments we have made (bonds, mortgages) so the loss or gain that we incur as a result of the client’s request to withdraw funds from their policy is passed on to the client.
  • Expense adjustment to recover upfront expenses
  • The expense adjustment is used to recover the expenses incurred when the contract is issued such as selling and administrative expenses. These expenses are normally recovered on an annual basis throughout the duration of the contract. If an early withdrawal of the funds is made, we must recoup those expenses that have not yet been recovered. This adjustment also covers the extra expenses involved in processing the early withdrawal.
  • Expense adjustment to account for liquidity risk
  • Liquidity risk arises whenever the liability holders (clients) demand immediate cash for their financial claims. There are times when this demand for cash results in larger than normal withdrawals for a financial institution. As a consequence, the institution may have to sell some of their less liquid assets to meet the withdrawal demands of the liability holders. Also, some assets with thin markets generate lower prices when the sale is immediate than if the financial institution had more time to negotiate the sale. Sun Life Financial must account for this expense associated with liquidity risk.

The expense adjustments represent the adjustment to the interest rates used in determining the cash value.

These expense adjustments can vary by product and are subject to change. They are based on levels at the time of withdrawal, not at the date of deposit.

The calculation of the market value involves:

  • projecting the expected cash flows (maturity value) at the contract rate
  • finding the discount rate, which reflects current interest rates plus the expense adjustment for upfront expenses and liquidity risk
  • calculating the cash surrender value by discounting the expected cash flows at the discount rate to the cash value date
  • the MVA is the difference between the accumulated value and the cash surrender value
Statements

RRIF statements are issued annually on January 1st. Investment maturity notices will be sent to the client 45 days in advance of the maturity. Confirmation statements will be sent to the client to confirm a new deposit or reinvestment of a matured investment.

Tax and information on death

Death benefit

Death benefit before the maturity date:

  • pay the accumulated value, date of death
  • if the policy is a Life Income Fund (LIF) or Restricted Life Income Fund (RLIF), we will pay the policy value in accordance with the applicable pension legislation.
If the beneficiary is the spouse as sole beneficiary:
  • purchase a Life, Joint Life or Term Certain (to age 90) payout annuity
  • transfer on a tax-sheltered basis to an Registered Retirement Savings Plan (RRSP) (available until December 31 of the year in which age 71 is attained by the beneficiary)
  • transfer on a tax-sheltered basis to another Income Master Registered Retirement Income Fund (RRIF)
    • Transfers to a contract in the name of the beneficiary must be done by December 31st of the year following the year of death.
  • assume ownership of the RRIF and continue to receive payments. As owner the spouse may exercise all rights, including the right to designate a beneficiary.
If the beneficiary is any beneficiary other than spouse as sole beneficiary (includes estate):
  • receive the value (as above) at the date of death, with no tax deducted at source.
    • the value at date of death will be taxed to the deceased
    • any increase in value from date of death to date of settlement will be taxed to the beneficiary

Note: A mentally/physically dependent child/grandchild may transfer to an RRSP, RRIF or purchase an annuity upon receiving Canada Revenue Agency's confirmation of the dependent status.

Taxation

Forms


  • Note: Please obtain a supply of this application through . If you need to print a copy to open a new account, please ensure a copy of it and the attached contract are provided to the client. A copy should also be retained for advisor records.