Industry groups call for changes to RRIF rules

Industry organizations are calling on the federal government to raise the age at which RRSPs must be converted to RRIFs and to reduce the annual RRIF minimum withdrawal rates.

The Department of Finance has undertaken a study of RRIFs, reviewing “whether the underlying assumptions regarding rates of return, inflation and longevity continue to be appropriate.” The department has consulted with stakeholders and asked for submissions by March 23. 

The study arose after a private member’s motion put forward by Liberal MP Kirsty Duncan was adopted by the House of Commons last June. The motion asked Finance to study whether current RRIF rules reflect Canadians’ retirement income needs. Finance is to report back to the House with its findings by June. 

Under current rules, Canadians generally transfer their savings to a RRIF by the end of the year they turn 71, and then begin making withdrawals according to an annual minimum rate, set by age.

“When [seniors] cannot fully take advantage of tax-free compounding within an RRSP and are forced to drawn down RRIF savings, they risk outliving their funds,” said Kelly Adams, chair of the Conference of Advanced Life Underwriting (CALU) in Ottawa and Guy Legault, president and CEO of CALU in a March 1 submission letter to the Department of Finance. 

CALU recommended the government allow Canadians to contribute to an RRSP past the current age limit of 71, with no requirement to convert an RRSP to a RRIF until 75.  

In addition, CALU recommended that the government allow unused RRSP contribution room to be indexed. 

“[Canadians] often cannot take advantage of their RRSP contribution room until closer to their retirement and therefore do not fully benefit from the tax-free investing opportunity with an RRSP,” Adams and Legault said. 

CALU also recommended that the government provide greater transparency regarding the factors used to establish the RRIF minimum payout formula, and that it establish a regular review process of the formula.  

Finally, CALU recommended the government allow RRIF holders to exclude up to $160,000, indexed to inflation, from the application of the RRIF minimum payments formula until a RRIF holder is 85, which would allow retirees to achieve a result similar to purchasing an Advanced Life Deferred Annuity. 

In its submission, the Investment Industry Association of Canada (IIAC) recommended the federal government raise the age at which contributions to RRSPs and other tax-deferred savings vehicles must end, and to eventually eliminate mandatory RRIF withdrawals altogether. 

“To the extent that annual RRIF withdrawals, combined with employment earning, move the recipient into a higher tax bracket, it discourages employment,” said Laura Paglia, IIAC’s president and CEO, in the association’s March 1 submission letter. “This, in turn, makes it more difficult for Canadians to replenish their savings after age 71.”  

Abolishing the mandatory minimum withdrawals will give Canadians “the freedom and flexibility to manage their savings according to their individual circumstances and in the most tax-efficient manner,” Paglia said, and “will eliminate a barrier to the continued labour force participation of older workers.” 

Seniors’ advocacy group CanAge Inc. also suggested the government increase the age at which an RRSP should be converted to a RRIF.

Raising the age would give older Canadians more flexibility in terms of retirement planning and “reduce the risk of their reliance on public services,” CanAge said. Any loss in tax revenue for the government would only be in the form of a deferral of tax; RRIF assets would still be taxed when ultimately withdrawn or on the death of the annuitant. 

Rudy Mezzetta

Rudy is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on tax, estate planning, industry news and more since 2005. Reach him at rudy@newcom.ca.