Quebec academic calls for changes to RRSP and RRIF age limits
April 14, 2022
A university professor from Sherbrooke, Quebec is calling for a couple of changes to Canada’s system of registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs), in light of the fact that people are living longer.
Professor Luc Godbout, Professor, School of Administration at the Université de Sherbrooke, is also Chair in Taxation and Public Finance. He kindly agreed to answer some questions Save with SPP had about his ideas, which were published by the C.D. Howe Institute as an open letter to federal Finance Minister Chrystia Freeland.
His open letter was originally published in French.
The professor’s open letter calls for “simple changes” to the existing rules.
“The first would be adjusting the threshold age at which registered capital accumulation plans – such as the RRSP – must be terminated. The rule now is age 71,” he notes in the letter.
Under the current rules, his letter explains, RRSP holders must “transfer their RRSP or defined-contribution pension plan balances into a RRIF or a life annuity” before the end of the year in which they reach age 71. If they don’t, he explains, “the entire value is added to their taxable income in that year.”
The age limit of 71 was established in 1957, his open letter notes. “This means that since the creation of the RRSP in 1957, the age limit of 71 has never been raised,” the open letter explains. “Yet, since 1957, the life expectancy of seniors in Canada has improved significantly.
“Life expectancy at age 65 was 14.5 years during the period 1955-1957. It improved to 20.9 years in 2018-2020. But the RRIF rules have not moved,” he writes.
He remarks that recent changes to Old Age Security (OAS) benefits for those aged 75 and older “provides an opportunity to harmonize other elements around our living 75-year-olds.”
Why not, he asks, consider allowing Canadians to postpone their OAS payments to age 75, rather than the current age 70? And, he asks, why not move the limit for converting an RRSP to a RRIF to 75?
“This type of change would optimize the mechanics of pension plans, and also encourage Canadians to remain in the workforce, which improves health and also helps with Canada’s looming labour shortage,” his open letter concludes.
Save with SPP asked the professor a couple of questions about his open letter.
Q. You mention that moving the “end date” for RRSP contributions (and for DC plans) and RRIF conversion to 75 from the current 71 would encourage more people to stay in the workforce. Do you see the current age 71 rule as something that encourages the opposite – a deadline that encourages retirement?
A. It may not be an important factor, but it cannot play favorably in the heads of those who want to continue in the labour market, for example, a liberal profession.
Q. If your idea on changing the date is adopted, do you think government retirement benefits like the Canada Pension Plan/Quebec Pension Plan and Old Age Security should also be changed?
A. Yes, but it is not an obligation to retire later, only to offer a possibility to delay the time when the pension begins, currently CPP between 60 and 70 years and OAS between 65 and 70 years.
Q. You note that while the RRIF age of 71 has been lowered (to 69) in the past, it has never been raised. Why do you think 71 is still the age, especially considering how things have changed since the rules came in in 1957, and retirement was mandatory at 65!
A. Because the scheme does not provide for the adjustment of this threshold to take account of the increase in life expectancy.
We thank Prof. Godbout for taking the time to answer our questions.
One way that a pension plan can deal with longer life expectancies of its membership is by providing the option of an annuity. The Saskatchewan Pension Plan provides a number of different annuity options for its retiring members – but all of them provide a lifetime monthly pension. Check out SPP today.
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Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.