Limited Relief for RRIF holders

The Finance Minister offered limited relief to retirees faced with depleting their tax deferred accounts through mandated minimum Registered Retirement Income Fund [RRIF] withdrawals. Retirees across the country have called for immediate action by way of a two year moratorium and their new government appears to have only partially heard them.

Prior to the Economic Statement, the only official response to the flood of letters and emails that MPs have been fielding is the Finance Minister’s direction to financial institutions to ensure that retirees do not have to sell their investments in order to meet the mandated RRIF withdrawals – which has always been true. And which does not deal with the central issue.

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 if they do not have other cash, even if they do not have to sell the stocks in order to make the withdrawals.

The situation is made worse by the precipitous drop in stock values and the fact that the amount to be withdrawn is calculated on January 1.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are the tax deferred savings depleted by the mandatory withdrawals, but with the reduced value, many more units must be withdrawn to meet the minimum withdrawal requirements and the tax deferred retirement savings would be depleted at alarming rates.

The Finance Minister announced a 25% reduction in the amount of mandated minimum RRIF withdrawals for 2008 only whereas CARP has asked for a full 2 year moratorium on the full amount of the withdrawals.

For people who have watched their retirement savings disappear before their eyes, a 25% reduction in the mandated withdrawals is most certainly better than nothing but really doesn’t go far enough to deal with the deep anxiety people are feeling.

The changes to the RRIF rules that CARP recommends would have little impact on tax revenues in the greater scheme of things especially since the taxes will eventually be paid and at greater levels if the markets recover. But it would bring welcome relief to those hardest hit.