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Canada’s new federal budget proposes a tweak to Registered Retirement Savings Plans (RRSPs) aimed at simplifying financial planning for thousands of seniors every year.
Tax and personal finance experts say while the new “RRSP for life” measure would be more convenient, it does not address seniors who are struggling under rising living costs.
An RRSP is a Canadian savings account that lowers your tax exposure today, and lets your savings and investments grow without being taxed until you retire. They can hold a wide variety of financial assets, including cash, stocks, guaranteed investment certificates (GICs), and exchange-traded funds (ETFs).
For the 2026 tax year, individuals can contribute up to 18 per cent of their earned income in 2025, up to a maximum of $33,810. If you have a workplace pension, the value of those pension contributions is deducted from that 18 per cent limit.
Thursday’s federal budget includes a number of measures aimed at making life more affordable for Canadians. More low-income workers will get benefit payments to help them make ends meet. Those who make a minimum of $3,000 annually get a refundable tax credit under the Canada Workers Benefit, but that threshold is being lowered to $500 for all workers.
What are the proposed changes?
Currently, RRSPs must be withdrawn or converted into a Registered Retirement Income Fund (RRIF) when the account holder turns 71. In the new federal budget, Ottawa proposes to allow Canadians to keep their RRSPs after they reach that age.
Currently, if someone dies after age 71 with a RRIF, the account can be transferred to a spouse without closing it or triggering tax paperwork. That’s not the case today with RRSPs.
Ottawa’s budget proposal would “allow a surviving spouse or partner to become a successor holder of an RRSP, and simplify tax-free transfers to qualified survivors after the death of the account holder.”
A public consultation on the plan started on Thursday, and will run until Jan. 8, 2027.
Jamie Golombek, managing director, tax and estate planning at CIBC Private Wealth Management, says today most 71-year-olds choose to convert their RRSPs to RRIFs to avoid the tax applied if they choose to cash out.
“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.”
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Under the proposed change, the government would require RRSP holders to withdraw a minimum percentage of their savings each year, starting at age 72. These percentages are based on average life expectancy to ensure that retirement savings is paid out and taxed gradually for the rest of the owner’s lifetime.
John Fragos, press secretary to Finance Minister François-Philippe Champagne, confirmed to CBC News that under the government’s proposal, RRSP account holders cannot contribute after age 71.
The Carney government’s second budget lays out over $150 billion in spending to attract investment, accelerate nation-building projects, boost housing and tackle the affordability crisis. The NDP says it favours the rich, while Conservatives call it a ‘credit card budget Canadians can’t afford.’
Why do the changes matter?
Aaron Hector, senior wealth advisor at Calgary-based Tier Wealth says simplifying the financial landscape for seniors is a smart move by the government. He also praises the proposal to allow RRSPs to be easily transferred after death.
“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,” he said. “Heaven forbid it slips through the cracks. It could create some issues for people.”
Li Zhang, director of social impact at Chartered Professional Accountants of Canada, sees the government’s “RRSP for life” proposal as “more of a nomenclature change,” that ignores bigger issues for seniors.
Firstly, she estimates only 33 to 37 per cent of Canadians actually have access to a pension.
“You’re not actually talking about a lot of people who have a lot of retirement savings assets,” she said. “If you’ve walked by food banks, and you look at the line, it’s the really young or the really old.”
She says another problem for RRSP holders is that the mandatory withdrawals can make it difficult to balance their income. “That then triggers higher levels of taxation,” she said.
While the consultation period for this plan runs until Jan. 8, Golombek expects it could take much longer to enact these changes if Ottawa elects to make them.
“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.”
Source: www.cbc.ca
