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Canadian tax rules ‘Put Pensioners at Risk’

Zone(s): Canada ¦ Sector(s): Tax, Pensions
[10 June 2014,] By Mike Godfrey,, Washington:  Canada’s pension rules have failed to keep pace with increased life expectancies and force Registered Retirement Income Fund (RRIF) holders to run tax-deferred assets down rapidly, the C.D. Howe Institute has said.  A new e-brief from the Institute, Outliving Our Savings: Registered Retirement Income Funds Rules Need a Big Update, warns that retirees are struggling to balance their need for current income against the risk of outliving their savings.

Federal tax rules require those with tax-deferred savings to either purchase annuities or transfer their assets into RRIFs or similar vehicles. The Income Tax Act obliges RRIF holders to withdraw minimum annual amounts on the basis of an age-related formula. The amount to be withdrawn increases each year, until it reaches 20 percent.

As the Institute explains: “By forcing the drawdown of assets that have received tax-deferred treatment, these provisions accelerate or otherwise ensure steady receipt of government tax revenue that would otherwise only occur on the death of the account holder or his/her spouse, partner or beneficiary.”

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