The Conservatives’ pre-election budget will include a package of seniors-friendly measures aimed at addressing concern that some Canadians are at risk of outliving their savings.
The Globe has learned that Tuesday’s budget will relax existing rules that force Canadians to withdraw minimum amounts from their registered retirement income funds (RRIFs).
The existing rules date back to 1992 at a time when interest rates were higher and seniors were not living as long. Relaxing the rules is not expected to have a significant impact on federal revenue because it would simply delay the point at which Canadians withdraw the funds and pay income tax.
Having already announced billions in tax breaks aimed at families with children, the Conservatives are now courting another key demographic. Elections Canada data show that older Canadians are more likely to turn out at the ballot box.
The package will include the doubling of the annual contribution limit to tax-free savings accounts, a previously signalled measure that is popular with seniors advocates. It is not clear whether the TFSA increase will be immediate or phased in over time. The doubling promise has been criticized by some as a tax break that would primarily benefit higher-income Canadians, but seniors argue that because TFSAs were introduced only in 2009, they have not had the opportunity to take full advantage of the program.
Seniors over the age of 71 are not allowed to contribute to RRSPs, making TFSA contributions an attractive alternative.
The budget is expected to address concerns that the current formula requiring seniors to withdraw minimum amounts from RRIFs is too rigid. Existing rules require Canadians to convert their RRSPs into an RRIF by age 71 at the latest.
However, there are rules that require a minimum annual withdrawal, based on either an individual’s age or the age of his or her spouse, that are expected to change.
“I think there’s been a lot of indication that that will be in [the budget],” said University of Calgary tax expert Jack Mintz, who is a member of Finance Minister Joe Oliver’s economic advisory team.
Several tax experts recommended the change during the House of Commons finance committee’s prebudget hearings.
Graham Smith, senior policy analyst with the Investment Funds Institute of Canada, said changing the withdrawal rules is “a pretty easy fix” to an obvious problem.
“The issue is that life expectancy has increased so quickly in recent years that the original formula that the government came up with doesn’t really work for a lot of retirees now,” he said in an interview. “You can easily end up in a situation where these mandated withdrawals cause people to outlive their savings.”
An analysis conducted last year by the C.D. Howe Institute concluded that eliminating the minimum withdrawal rules would have “no significant fiscal impact” for government.
The Canadian Association of Retired Persons is supportive of both the increase in TFSA limits and changes to the RRIF rules.
“For our members, it matters, especially if they lost big in 2008,” said Susan Eng, vice-president of advocacy for CARP.
Ms. Eng said her organization’s preference would be to get rid of the RRIF rules altogether, but a softening of the withdrawal rates would be an improvement over the status quo.
The seniors group has also called on Ottawa to reverse plans to raise the age of eligibility for Old Age Security to 67 from 65 and to expand the Canada Pension Plan, but Ms. Eng is not expecting the government to act on either of those concerns.
At a time of growing concern over voter turnout, older Canadians are consistently more likely than younger Canadians to cast a ballot. For the 2011 election, only 39 per cent of voters aged 18 to 24 turned out to vote. By contrast, 72 per cent of Canadians aged 55 to 64 turned out and 75 per cent of voters aged 65 to 74 cast ballots. Voter turnout among those aged 75 and older was lower, at 60 per cent.
Ms. Eng, who will be participating in an advocacy day Monday in Ottawa called “Seniors Vote,” said seniors will take a very close look at election promises before casting their ballots.
“We’re going to be keeping this up throughout the election,” she said. “Seniors are really clear-headed about this now. It used be you could say the word ‘seniors’ in your announcement and they’re all for you … There’s going to be no chance you can get away with just saying: ‘We love seniors.’”Report Typo/Error