Alan Freeman, former Globe and Mail finance reporter and Assistant Deputy Minister for Consultations and Communications with the federal finance department under the late Jim Flaherty, reports from the 2015 budget lock-up on behalf of the National Association of Federal Retirees and iPolitics. In the coming weeks, the Association will provide in-depth analysis of the budget and what it means for federal retirees. Note that the figures for Registered Retirement Income Fund (RRIFs) mandatory withdrawals have been corrected.The federal government reaffirmed its intention to continue its study of target-benefit pension plans.
Finance Minister Joe Oliver, in his first budget since taking on the portfolio, said Tuesday that the government “continues to assess a voluntary target benefit option” for Crown corporations and federally-regulated businesses like banks, broadcasters and railways.
However, the budget aimed to reassure active members of these plans and retirees.
“The government understands the importance of ensuring that any changes to the federal pension regime protect benefits that have already been earned by requiring that plan members and retirees consent to the treatment of accrued benefits at the time of plan conversion.”
A government official wouldn’t elaborate on the kind of consent being contemplated, saying the consultations are ongoing. In New Brunswick, which adopted the nation’s first target-benefit plan in 2013, retirees were not consulted in advance on the new plan, prompting them to launch legal action challenging the legislation.
Some provinces are considering similar target-benefit plans and are mulling various formulas for consulting members, including a negative option for retirees, which would require 30 per cent of them to indicate their opposition for the measure to be stopped. Silence on the issue would effectively equal consent.
The official also repeated the government’s previously-stated intention not to proceed with the target-benefit option for the core public service.
While Ottawa indicated a go-slow on target-benefit plans, it continued its onslaught on sick leave and disability benefits for the public service. It booked a $900-million saving in the 2015-16 fiscal for virtual elimination of the bank of sick days in the core public service. It said it plans to negotiate a new disability deal with unionized workers but made it clear that if talks don’t turn out the way it wants, it will “take steps” to implement a new plan “within a reasonable timeframe,” a blunt threat to legislate.
The budget included a series of measures aimed at seniors, a key demographic for the Conservatives in the run-up to a federal general election, including liberalized rules for withdrawal of retirement income funds, expansion of tax free savings accounts, and measures to help disabled and gravely ill individuals.
Top among these measures is the decision to increase the annual amount of money individuals can invest in tax free savings accounts to $10,000 from $5,500. Although they are open to all Canadians over the age of 18, TFSAs have been particularly popular with seniors. According to the Finance Department, 1.9 million individuals contributed the maximum allowable amount to TFSAs by the end of 2013, of whom 46 per cent were seniors. The measure will cost the government $85-million a year in 2015-16, rising to $360-million in four years’ time.
The TFSA changes are due to come into effect in 2015.
The government said it plans to reduce the minimum required rate of withdrawal of funds for seniors who hold Registered Retirement Income Funds (RRIFs). Currently, Registered Retirement Savings Plans (RRSPs) must be converted into RRIFs by the end of the year when the senior turns 71 and a minimum amount must be withdrawn every year that follows. The rate currently starts at 7.38 per cent at the age of 71 and rises to 20 at age 94.
Because of lower investment returns and to make sure seniors’ capital doesn’t run out with longer life spans, the withdrawal amounts will be reduced to 5.28 per cent at age 71, rising to a maximum of 20 per cent at age 95.
For somebody who starts with a $100,000 fund, it means that they will still have $24,000 in capital at age 95, compared with just $15,000 under the current regime. The new rules are due to come into effect for the 2015 tax year.
The measure is unlikely to have a major impact on retirees like federal public servants who spent their entire career in a workplace offering a substantive defined-benefit pension plan because they had little tax space available for RRSPs.
Also included in the budget is up to $37-million for an extension of compassionate care benefits available under employment insurance system. Currently, an eligible family member who is providing compassionate care to a loved one who is dying or at risk of death can receive up to six weeks of EI benefits. That will increase to a maximum of six months under the new scheme.
Fewer than 6,000 people received the benefit in 2011-12. An official conceded that the new program will still benefit only a relatively small number of Canadians with much of the extra money likely to go to an extension of the time that carers receive EI rather than a substantial increase in the number of beneficiaries.
The government also announced a new home accessibility tax credit for seniors and people with disabilities. The proposed income tax credit would allow a taxpayer to claim up to $1,500 in annual federal tax relief for home renovations like walk-in bathtubs and wheelchair ramps allowing them to remain in their homes.
To qualify for the maximum $1,500 credit, a taxpayer would have to spend $10,000 on renovations. It comes into effect in 2016.
The credit can be claimed by relatives of the qualifying individual if certain conditions are met.