There weren’t many surprises in the 2015 federal budget, which includes changes to TFSA contribution limits and the amount seniors will be required to withdraw from registered retirement income funds (RRIFs).
The annual TFSA contribution limit has increased to $10,000 this year, up from its current level of $5,500.
“I think it’s really quite a positive move for retirement security in general,” says Morneau Shepell chief actuary Fred Vettese, noting it’s a “pretty major” increase.
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Plan sponsors may also be more likely to consider offering a group TFSA.
“We estimate that less than 10% of employers offer TFSAs to their employees,” says Kiersten Johnston, a principal at Eckler’s pension practice. “I think increasing the limit may encourage more employers to offer this type of retirement vehicle as part of their platform.”
The minimum amounts that have to be withdrawn from a RRIF have also been changed.
Currently, people aged 71 and older need to make mandatory withdrawals from their RRIF whether they need the money or not.
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The withdrawal rules were established in 1992 and longevity has improved substantially since then.
Canadians who are 71 will now only have to withdraw 5.28% from their RRIF, down from the current 7.38%. (See the table below for detailed changes.)
“The reduction in the amount you have to withdraw from a RRIF is also a very positive move, one that is long overdue given that interest rates have been low for such a long time and may end up being low for quite a while to come,” Vettese explains.
Johnston notes reducing the limit could help prevent seniors from spending their retirement savings too quickly.
“I think lowering the limits is welcomed if it does encourage people to be cautious in how much they spend in their retirement,” she says.
The budget document says RRIF holders who withdraw more than the reduced 2015 minimum amount will be permitted to re-contribute the excess to their RRIFs. Re-contributions will be permitted until Feb. 29, 2016 and will be deductible for the 2015 taxation year. Similar rules will apply to those receiving annual payments from a DC registered pension plan or a Pooled Registered Pension Plan.
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Existing and new RRIF factors
| Age | Existing factor | New factor |
71 | 7.38% | 5.28% |
72 | 7.48% | 5.40% |
73 | 7.59% | 5.53% |
74 | 7.71% | 5.67% |
75 | 7.85% | 5.82% |
76 | 7.99% | 5.98% |
77 | 8.15% | 6.17% |
78 | 8.33% | 6.36% |
79 | 8.53% | 6.58% |
80 | 8.75% | 6.82% |
81 | 8.99% | 7.08% |
82 | 9.27% | 7.38% |
83 | 9.58% | 7.71% |
84 | 9.93% | 8.08% |
85 | 10.33% | 8.51% |
86 | 10.79% | 8.99% |
87 | 11.33% | 9.55% |
88 | 11.96% | 10.21% |
89 | 12.71% | 10.99% |
90 | 13.62% | 11.92% |
91 | 14.73% | 13.06% |
92 | 16.12% | 14.49% |
93 | 17.92% | 16.34% |
94 | 20% | 18.79% |
95 & over | 20% | 20% |
Looking for related stories? Read more of our coverage of the 2015 federal budget.