Changes to TFSAs, RRIFs coming

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.

Read: Plans to increase TFSA limit come under fire

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The minimum amounts that have to be withdrawn from a RRIF have also been changed.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.

Read: Feds post modest surplus in election-year budget

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.

Read: CARP wants mandatory RRIF withdrawals eliminated

Existing and new RRIF factors

Existing factor
New factor
7.38% 5.28%
7.48% 5.40%
7.59% 5.53%
7.71% 5.67%
7.85% 5.82%
7.99% 5.98%
8.15% 6.17%
8.33% 6.36%
8.53% 6.58%
8.75% 6.82%
8.99% 7.08%
9.27% 7.38%
9.58% 7.71%
9.93% 8.08%
10.33% 8.51%
10.79% 8.99%
11.33% 9.55%
11.96% 10.21%
12.71% 10.99%
13.62% 11.92%
14.73% 13.06%
16.12% 14.49%
17.92% 16.34%
20% 18.79%
95 & over
20% 20%

Pensions in the budget

There were a couple of items related to pensions that were mentioned in this year’s budget.

Simplifying pension fund investment in Canada
To reduce red tape and improve the investment climate in Canada, the government will undertake a public consultation on the usefulness of the rule that restricts federal pension funds from holding more than 30% of the voting shares of a company.

Federal pension framework
The government is leading an initiative with the provinces to harmonize the supervision of Pooled Registered Pension Plans (PRPPs) across Canada to achieve lower costs through a multilateral agreement.

The government also continues to assess a voluntary target benefit plan (TBP) option for Crown corporations and federally regulated private sector pension plans. In addition, given that a number of provinces are moving ahead with the development and implementation of TBP frameworks for their jurisdictions, the government will consider modifications to the income tax rules to appropriately accommodate TBPs within the system of rules and limits for registered pension plans.

“It’s a great concept. We’ve been waiting for target benefit plans for a number of years now, especially in Ontario,” says Kiersten Johnston, a principal at Eckler’s pension practice. “If you don’t make the tax reporting harmonized, you’re not going to have employers migrate to these plans,”

Looking for related stories? Read more of our coverage of the 2015 federal budget.