RRIF and GIS rules – Double whammy for low income seniors

Time for real change

December 7th 2010 – Just when you thought RRIF rules couldnt get worse, they do. Ottawa has been in high dudgeon over a little known but apparently long standing wrinkle that provided a bit of relief for low income seniors who take out RRIF funds for unexpected expenses like funerals or medical costs.

In the past, such lump sum RRIF withdrawals were excluded in calculating eligibility for GIS in certain circumstances. In fact, there were court cases over what those circumstances were. Bottom line, if the withdrawal emptied your RRIF, it was excluded. If you had anything left in the RRIF, it was not and your GIS for the next year would be reduced.

In all cases, the RRIF withdrawals were taxable anyway; it was the impact on the GIS eligibility that caused the hardship. That could be why the policy was put in place to provide a bit of relief for low income seniors likely with modest RRIFs. The reasoning is lost in the mists of time.

The department decision to change it is also foggy and caught just about everyone by surprise providing lots of oxygen for Question Period and media – here is a sample of the coverage:

At the CBC

At the National Post

At the Globe and Mail

At the Globe and Mail

At the Globe and Mail Again with a Different Point of View

At the Financial Post

Before it was over [and it may not be], the Minister of Human Resources and Skills Development, the House Leaders and the Prime Minister and Leader of the Opposition had had their say on the issue. Read the Hansards here.

The Minister issued a letter to CARP members, which we sent to the media, saying unreservedly that the change was rescinded. Not so fast, say the Opposition, waving a portion of a leaked memo that suggested that cancelled doesnt always mean cancelled. It could mean maybe – the actual words were on hold

Ok. Ill bite. Which is it? Are we using the old rules or the new ones?

So CARP asked for a clarification from the Ministers office and heres what we got back:

“A story appeared in the Globe and Mail alleging that an HRSDC memo shows changes made in May 2010 to GIS policy regarding RRIFs has not been cancelled.

This story is false.

The Departmental memo clearly states that all GIS applications affected are to be put on hold with instructions to follow shortly, which is exactly what Minister Finley had stated publicly.

The reporter is using partial quotes out of context.

The Minister has been clear that this change has been cancelled. Any suggestion to the contrary is incorrect.

The Minister has confirmed with the department that her instructions have been followed and the policy change has been cancelled.

No Government has done more for seniors that our Conservative Government.”

This is an opportunity for all this Parliamentary angst to amount to real change to help low income Canadians who might have tried to save a bit for their own retirement and now find that the GIS eligibility rules combined with the treatment of unexpected RRIF withdrawals undermine their efforts.

People with low career earnings are not generally suitable candidates for tax deferred savings like RRSPs and RRIFs in any event and the GIS eligibility rules just magnify the problems they face on retirement.

CARP has suggested possible solutions, including increasing the current exemption for casual earnings from $3,500 to $5,000 or more before such earnings reduce GIS eligibility AND expanding it to include such RRIF and RRSP withdrawals or allowing a one time rollover of modest amounts of RRSP and RRIF funds into a TFSA which does not affect GIS eligibility.

Well keep an eye on this and let you know if real solutions arrive in the next federal budget.