Human Resources Minister Diane Finley speaks during Question Period in the House of Commons on May 13, 2010.Sean Kilpatrick/The Canadian Press
A new policy that would have led thousands of low-income seniors to unknowingly surrender their federal-income support is now on hold and under review after its potential impact was reported in The Globe and Mail.
Human Resources Minister Diane Finley made the announcement on Friday in the House of Commons and instructed officials to contact all seniors who might be affected. She promised that the old rules will be used to calculate their Guaranteed Income Supplement (GIS) payments - a social welfare program for Canadian seniors earning $15,815.99 or less a year.
"I was very concerned by what was reported," Ms. Finley said when Liberal MP Gerry Byrne asked about the issue in the House of Commons. "That is why I have instructed departmental officials to immediately put a hold on this policy while we review it completely."
Thousands of seniors would have lost a key part of their monthly income because of new internal guidelines the federal government approved in May without public notice.
The rules would have changed the way lump-sum withdrawals from Registered Retirement Income Funds (RRIF) affect GIS payments, doing away with a provision that exempted RRIF withdrawals from being counted as income for the purposes of calculating GIS payouts.
The complicated rules surrounding RRIFs - which are what a Registered Retirement Savings Plan becomes in retirement - is adding fuel to the view that for many Canadians, long-heralded RRSPs are not the best way to save.
That advice has got stronger since the government launched tax-free savings accounts last year.
"I would encourage nearly all Canadians in lower and middle [tax]brackets to seriously consider the tax-free savings account as the primary source of retirement savings," said Jamie Golombek, CIBC's managing director of tax and estate planning. "The primary benefit I think is illustrated by this whole issue."
That way, withdrawals from TFSAs in retirement would not cause a decrease in government benefits like the GIS or Old Age Security.
"There has been a strong message in the last decade that the lowest-income Canadians should not be saving in RSPs because of the negative impact on loss of government benefits," said Mr. Golombek.
Opposition MPs said the minister should scrap the policy permanently. Mr. Byrne, who first raised the issue in the House this week, said the government's actions call into question the value of RRSPs as a savings option.
"For years and years and years, we have been promoting the value of the registered retirement savings plan as an investment tool," he said. "What this does is it takes a key plank of the retirement income system [and]says we are deleting, we are negating a significant portion of its value."
A study released this week showed a nearly 25-per-cent jump in the number of seniors living below the low-income cut-off in 2008.
The focus on the most recent problem with the GIS, has turned a spotlight on the difficulties many seniors have with a maze of bureaucratic rules that govern these support programs.
The existing GIS rules caused significant pain and hardship for Yusuf Sydow, a retired social worker in Toronto. Last year, he received $15,000 from a divorce settlement that was taken from a RRSP. He didn't realize it at the time, but accepting that one-time payment meant he could not qualify for the supplement for that year, because it was counted as income that took him above the $15,815.99 threshold for receiving GIS.
Mr. Sydow, who was already struggling to get by on a little more than $1,000 a month, found his income slashed to $593 a month. His rent alone is more than $800, so he took a part-time job as a crossing guard to make ends meet. At 66 years old and having survived a major heart attack, part-time work is what he can manage, he said.
"I challenge Ms. Finley to spend a month in my shoes to understand how in God's name I'm supposed to live on this," Mr. Sydow said. "Why can't they have flexibility in the system? It's very easy for them to see what I earn and give me my GIS back. Why should a senior like me suffer like this?"
Bill Curry