Federal budget proposes 'RRSP for life' to simplify retirement planning

OTTAWA · The federal budget proposes allowing Canadians to keep their Registered Retirement Savings Plans after they turn 71, a change the government calls "RRSP for life." The plan would also let a surviving spouse become the successor holder of an RRSP, simplifying tax-free transfers after death. A public consultation on the proposal started on Thursday and will run until Jan. 8, 2027. Currently, RRSPs must be withdrawn or converted into a Registered Retirement Income Fund when the account holder reaches age 71.

Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management, said the current requirement creates administrative complexity. "It's a complex administrative thing for hundreds of thousands at least every year," he told CBC News. "What the government is saying is, 'Why not have an RRSP for life?' In other words, an RRSP that you basically have until the day you die." Under the proposed change, RRSP holders would still be required to withdraw a minimum percentage of their savings each year starting at age 72. John Fragos, press secretary to Finance Minister François-Philippe Champagne, confirmed that under the proposal, RRSP account holders could not make contributions after age 71. The mandatory withdrawal percentages are based on average life expectancy to ensure retirement savings are paid out and taxed gradually. Aaron Hector, a senior wealth advisor at Calgary-based Tier Wealth, praised the move to simplify the financial landscape for seniors and the easier post-death transfer.

"Not needing someone to go through the paperwork process of converting an RRSP into a RRIF just makes a lot of common sense for me," Hector said. "Heaven forbid it slips through the cracks. It could create some issues for people." Tax and personal finance experts say while the measure would be more convenient, it does not address seniors struggling with rising living costs.

Li Zhang, director of social impact at Chartered Professional Accountants of Canada, called the proposal "more of a nomenclature change" that ignores bigger issues. She estimates only 33 to 37 per cent of Canadians have access to a pension. "You're not actually talking about a lot of people who have a lot of retirement savings assets," Zhang said. "If you've walked by food banks, and you look at the line, it's the really young or the really old." Zhang said another problem for RRSP holders is that mandatory withdrawals can make it difficult to balance their income, which can trigger higher levels of taxation. While the consultation period runs until early 2027, Golombek expects it could take years to enact the changes if Ottawa proceeds. "I think it's going to be a few years before we see the ultimate merger of these, or at least the elimination of the RRIF," he said.

With files from CBC News