Relief is on the way for retirees who’ve been watching their portfolios dwindle during the market sell-off sparked by the Covid-19 pandemic.
On Wednesday, Finance Minister Bill Morneau told reporters that the federal government would be reducing the minimum withdrawal rate for registered retirement income funds (RRIFs) by 25% for 2020.
The measure was part of an $82-billion relief package announced by the government. The lower RRIF withdrawal rate is expected to cost $495 million in the 2020-21 tax year, according to a Department of Finance backgrounder.
Similar rules will apply to those receiving variable benefit payments under a defined contribution registered pension plan, the department said.
Morneau acknowledged that current volatile market conditions are having an impact on seniors’ retirement savings. He said the government would “continue to monitor this issue as markets evolve.”
In an interview, Elliot Hughes, senior advisor with Ottawa-based Summa Strategies Canada Inc., said the decision to reduce minimum RRIF withdrawals was “the right call.”
“This is about making sure that seniors, who are among the most vulnerable Canadians, aren’t going to be unnecessarily hurt, penalized or disadvantaged by this global economic crisis,” said Hughes, who previously served as Morneau’s deputy director of tax policy.
While Morneau’s announcement will provide a measure of relief to retirees drawing down RRIFs, it falls short of a recommendation made by the C.D. Howe Institute to suspend minimum RRIF withdrawals altogether for the time being.
Hughes said an outright suspension on minimum RRIF withdrawals would have been drastic, given the circumstances.
“By taking a smart approach to ease some of the restrictions on RRIF withdrawals, I think the government has acted smartly in the short term,” Hughes said. “That said, some of the thinking that’s occurred in response to this crisis may contribute to future discussions on how best to treat RRIFs and other retirement savings approaches.”
As for other sources of retirement income, Morneau said eligible retirees would continue to receive Old Age Security and Guaranteed Income Supplement payments “without any interruption” as the government responds to the Covid-19 crisis.