Federal Finance Minister Joe Oliver tabled the 2015 federal budget on April 21, 2015. This blog summarizes the changes in the new budget that affect retirement income and savings. Budget changes that do not relate to retirement income and savings have been covered extensively by many accounting and tax advisory firms and will not be covered in this blog.
Main Change – Minimum Withdrawal Factors for Registered Retirement Income Funds (RRIFs)
The main retirement-related change introduced in Budget 2015 is to adjust the RRIF minimum withdrawal factors that apply in respect of ages 71 to 94, as follows:
The existing factors were determined on the basis of providing a regular stream of payments from age 71 to 100 assuming a 7% per annum nominal rate of return and indexing at 1% annually with factors capped at 20% for ages 94 and over. The new factors were determined assuming a 5% per annum nominal rate of return and indexing at 2% annually with factors capped at 20% for ages 95 and over.
Minimum withdrawal factors for ages 70 and under remain unchanged and continue to be determined by the formula 1 / (90 – age). Note that at the time of establishing the RRIF,individuals also have the option to base the minimum withdrawal amounts on the age of their spouse or common-law partner.
Similar rules will apply to those receiving annual payments from a defined contribution registered pension plan (RPP) or a Pooled Registered Pension Plan (PRPP). These new factors will also apply to minimum payments from an Individual Pension Plan (IPP) after age 71 for members who are controlling shareholders or related persons.
Other Potential Pension-Related Changes
Government will undertake a public consultation on the usefulness of the rule that restricts federal pension funds from holding more than 30 per cent of the voting shares of a company.
Government will continue to assess a voluntary Target Benefit Plan option for Crown corporations and federally regulated private sector pension plans. A Target Benefit Plan involves fixed contributions similar to a defined contribution pension plan but provides defined benefit pension based on affordability projections. Contributions are set independently of a plan’s funded position and members share plan risks through adjustments or reductions to their pension benefits. Any changes to the federal pension that have already been earned will require that plan members and retirees consent to the treatment of accrued benefits at the time of plan conversion. Given that a number of provinces are moving ahead with the development and implementation of Target Benefit Plan frameworks for their jurisdictions, the Government will consider modifications to the income tax rules to appropriately accommodate Target Benefit Plans within the system of rules and limits for Registered Pension Plans
This content is for general information only. As it is impossible to include all situations, circumstances and exceptions in a commentary such as this, a further review or study should be undertaken with respect to the application of the Budget 2015 proposals to the reader’s own situations and circumstances. Every effort has been made to ensure the accuracy of the information contained in this commentary. However, because of the nature of the subject, no person or firm involved in the preparation or distribution of this commentary accepts any liability for its contents or use.