CARP chapters and other retiree groups will be watching on Wednesday to see if the government’s Throne Speech will respond to the clamour across the country for mandated Registered Retirement Income Fund [RRIF] withdrawals to be suspended and for their pensions to be protected against unfunded deficits.
“CARP has received numerous calls and emails from retirees hard hit by the market turmoil and we have encouraged them to write to their elected representatives. And they have – all across the country. They will be watching to see if the newly re-elected government will pay attention to their cries for relief”, said Susan Eng, Vice President, Advocacy of CARP.
Current tax rules require people to withdraw fixed amounts from their RRIFs after reaching age 71 and many must sell their stocks to fund the tax payable on such withdrawals.
CARP is on the record as saying that mandatory withdrawals should be eliminated entirely because they force people to deplete their tax free accounts unnecessarily. The situation is made worse by the precipitous drop in stock values and the fact that the amount to be withdrawn is calculated on January 1. So, not only are the savings depleted by the mandatory withdrawals, but with the reduced value, many more units must be withdrawn to meet the minimum withdrawal requirements and the retirement savings would be depleted at alarming rates. This compounds the anxiety that is already being felt as retirees watch their savings disappear before their eyes.
CARP has been inundated with calls from its members across the country who are looking for government action and see a moratorium on the mandated withdrawals as a measure of immediate relief.
So, on October 29th CARP called for at least a two-year moratorium on the mandatory withdrawals. “It would at least take salt out of the wounds”, said Eng.
In an open letter dated November 6th, 2008 to all of the First Ministers as well as the Prime Minister, CARP pointed out that the disastrous effect of the current stock-market turmoil on retirees could not be overstated and urged them to take immediate action to protect them.
CARP’s letter called for specific action to protect current retirement savings and to provide retirement security into the future, including an immediate moratorium on mandated minimum Registered Retirement Income Fund [RRIF] withdrawals, conditions to protect pensioners in exchange for extending the time for pension fund managers to fund deficits and implementing a universal supplementary pension plan for those without any retirement savings.
In response, CARP received a form letter from the Finance Minister’s office and more detailed letters from the British Columbia Premier’s office and the Nova Scotia Premier’s office. The B.C. Premier’s office said it supported amending the legislation so people did not start withdrawals by age 71, they reported that they supported Canadians beyond the age of 71 being able to continue making money while keeping their money and tax benefits in RRSPs.
Shortly thereafter, AARP also called for the abolition of mandatory withdrawals from the American 401K accounts which are comparable to RRIFs.