This week, Prime Minister Mark Carney confirmed that François-Philippe Champagne will remain as finance minister. While many had expected that one of his first orders of business would be tabling a federal budget, on Wednesday Champagne suggested that he would not be presenting a spring budget when the House of Commons resumes sitting at the end of the month. Instead, he announced that the government’s top three priorities would be: tabling a motion to cut the bottom income tax bracket by one per cent; presenting a speech to the throne on May 27; and then publishing an economic update in the fall.
With no budget on the horizon, some seniors may be in a bit of a pickle when planning their 2025 retirement income. That’s because, to date, we haven’t been given any details on how or when the Liberals will fulfil their pre-election promise to “protect retirement savings” by reducing the minimum amount that must be withdrawn from a registered retirement income fund (RRIF) by 25 per cent for one year. This measure was designed to “allow Canadian seniors more flexibility in choosing when to draw from their retirement savings.”
A RRIF is the most common successor of a registered retirement savings plan (RRSP), the other being the purchase of a registered annuity. A RRIF allows you to keep the same investments as you had in your RRSP and continue to defer taxes on the invested funds, with the notable exception that you must withdraw at least a required minimum amount annually, starting in the year after you set up the RRIF. You must close out your RRSP by the end of the year in which you turn 71.
The requirement to withdraw a minimum annual amount, whether you need it or not, is one of the biggest concerns voiced by some seniors when it comes to retirement planning since it effectively forces them to pay tax on their retirement assets before they need to spend them. The minimum amount is based on a percentage factor, often referred to as the “RRIF factor,” multiplied by the fair market value of your RRIF assets on Jan. 1 each year.
For example, if you converted your RRSP to a RRIF in 2024 when you turned 71, and the balance of your RRIF was $100,000 on Jan. 1, 2025, then you must withdraw 5.28 per cent, or $5,280, this year. The RRIF factor increases each year until age 95, when the percentage is capped at 20 per cent annually thereafter.
The RRIF rules haven’t kept up with recent demographic and economic trends, something that was the subject of a 2023 C.D. Howe Institute report entitled Live Long and Prosper? Mandatory RRIF Drawdowns Raise the Risk of Outliving Tax-Deferred Saving, in which co-authors William Robson and Alexandre Laurin called for a “revamping” of the RRIF withdrawal rules. In that report, they noted that longer lives and lower returns increase the likelihood that current mandatory minimum withdrawals “will leave seniors with negligible income from their tax-deferred saving in their later years.”
They wrote that “government impatience” to collect tax revenue on RRIF withdrawals should not force fund holders to prematurely deplete their nest eggs. Instead, minimum withdrawals should be adjusted to reflect updated demographic and economic realities. The Institute’s 2025 Shadow Budget, released last month, recommended an immediate one percentage point reduction of minimum withdrawals from RRIFs mandated for each age, beginning with this year.
The Liberal plan simply calls for a one-time reduction to all factors by 25 per cent. What remains to be seen, however, is whether that reduction will be in place for the current 2025 tax year, or perhaps only for 2026.
For some insight as to how the RRIF reduction may work, we can turn to previous instances when the RRIF minimums were lowered. In March 2008, in response to the financial crisis, the government temporarily lowered RRIF minimum withdrawal requirements by 25 per cent for 2008. Then, in 2015, the entire table of RRIF factors was revamped, with the starting factor lowered by approximately 25 per cent at age 71, before gradually converging with the old factors. And, in March 2020, the government temporarily decreased the required minimum withdrawals from RRIFs by 25 per cent for the 2020 calendar year as part of its COVID-19 response plan.
But each of these announcements was handled differently in so far as permitting recontributions for taxpayers who had already taken out their unreduced minimums prior to the dates the RRIF reductions were announced. In 2008, for example, the legislation permitted individuals who had already withdrawn more than the minimums from their RRIFs in early 2008 to recontribute the excess back to their RRIF by April 2009.
Similarly in 2015, when the RRIF minimum amount percentages were lowered as part of the 2015 federal budget, the legislative amendments permitted those who had already withdrawn more than the new minimum amount in 2015 to recontribute any excess until February 29, 2016 (the RRSP deadline that year), and the amount recontributed was tax deductible in 2015.
But in 2020 individuals who had already withdrawn more than the reduced minimum amount that year were not permitted to recontribute any excess withdrawals to their RRIFs. This position was seen by many as unfair from a policy perspective as they felt that the transitional minimum amounts for 2020 should have applied equally to all seniors, regardless of whether they had instructed their financial institution to withdraw an amount prior to the government’s COVID relief measures.
If the government does choose 2025 as the year in which RRIF minimums are temporarily lowered, hopefully those who have already taken out their minimums for the year will be given the opportunity to recontribute so they are not disadvantaged.
Until we have more information, it may be wise for some seniors to halt RRIF minimum withdrawals (where not need for living expenses), at least temporarily, so as not to be disadvantaged should the new rules not permit recontributions.