Low-income seniors threatened by changes to federal income support

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Low-income Canadian seniors could be driven into poverty next summer when they find out Ottawa has cut their federal income support.

Some are poised to lose a key part of their monthly income because of a new policy approved by the federal government without public notice, according to internal guidelines obtained by The Globe and Mail.

The rules change the way lump-sum withdrawals from Registered Retirement Income Funds affect Guaranteed Income Supplement payments.

Low-income seniors across the country will be affected if they withdraw more than the minimum allowed from their RRIF - which is what a Registered Retirement Savings Plan becomes in retirement. For example, if a senior with an income of $13,000 withdraws $5,000 from an RRIF to make a one-off expenditure, whether to pay for an uninsured health treatment or a family member's funeral, the new policy would treat his or her income for that year as $18,000. That would place them above the $15,815.99 threshold for receiving GIS payments, which are meant to ease the financial burden of low-income seniors. In the past, seniors could have their GIS eligibility calculated based on projected income, which did not take into account large RRIF withdrawals.

The issue is of particular importance in Newfoundland and Labrador, where failing to qualify for GIS could mean the loss of prescription drug coverage.

"I think it's immoral," said Gerard Lee, who worked on benefits files for the federal government as a Service Canada client services officer in Corner Brook, Nfld., before retiring this year. Mr. Lee wrote to Human Resources Minister Diane Finley in August saying it was "grossly unfair" of the government to make the change without any public notice or effort to inform seniors.

In a written response last month, Ms. Finley defended the change and said the courts had urged Ottawa to clear up the rules in this area. Yet Ms. Finley's office had more to say Thursday when informed The Globe would be writing a story on the issue.

"The Minister has instructed the department to urgently review this policy," said Ryan Sparrow, Ms. Finley's director of communications. Mr. Lee later said the minister's pledge was "excellent" news.

The issue is surfacing as new data show the number of Canadian seniors living in poverty jumped nearly 25 per cent between 2007 and 2008, to 250,000 from 204,000, according to Campaign 2000.

Many Canadians use RRSPs to support their income in retirement, when the funds must be turned into RRIFs no later than the year they turn 71. However, the new rules now in effect mean that seniors who tap into their RRIFs for additional withdrawals beyond the minimum payment - for whatever reason - will now have that withdrawal counted as income for GIS purposes.

GIS payments can range from just 40 cents a month to $658.40 a month, depending on income. These amounts are in addition to Old Age Security payments.

In the past, such RRIF withdrawals were only counted as income for tax purposes, while a special provision allowed seniors to have GIS calculated based on their projected income, rather than last year's income. That option was revoked in May without any public notice.

That means low-income seniors could find out in July, 2011 - when the next round of GIS payments are allotted - that their 2010 income was too high for them to qualify.

"People won't find out until July 1, 2011, that they've just screwed themselves," said Newfoundland Liberal MP Gerry Byrne, who raised the issue in the House of Commons Thursday. "They're going to be shocked."

Pam Hyatt, a 74-year-old actress in Toronto, said the changes seem unduly harsh.

"That's really cruel," said Ms. Hyatt, who qualified for the GIS last year after earning a taxable net income of $9,000. "If they've got an emergency like a funeral or an operation not covered by provincial insurance they should be able to pull some money out of their RRIFs in order to help themselves or their family."

Many artists over 55 are, like Ms. Hyatt, living in straitened circumstances. New research by the Senior Artists' Research Project found 35 per cent of elderly artists have annual incomes of less than $20,000.

Ms. Hyatt has worked for more than 52 years, and plans to continue working as long as she is able. "It's a miracle I'm still here," she said, laughing.