Retirement advocacy group supports Liberal plan to change RRIF rules

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THE CANADIAN PRESS

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TORONTO - With stock markets falling and investments shedding value, the federal government should change the rules for registered retirement income funds (RRIFS) to allow retirees to delay withdrawals until assets begin to recover, say investment experts.

At age 71, Canadians holding registered retirement saving plans, or RRSPs, are required to convert them into RRIFS from which they are required to cash in a minimum amount every year.

This requires seniors to sell portfolio assets to make the minimum withdrawal. But pensioners have lost significant value in their retirement portfolios as the stock markets have crashed.

The Toronto Stock Exchange has lost more than a third of its value since reaching a record high in June, a paper loss of more than $500 billion in the value of shares listed on Canada's senior exchange.

That has cut the value of RRSPs, mutual funds, pension plan assets and other investments held by Canadians.

A measure of that decline, the Mercer Pension Health Index, put out by human resources consulting firm Mercer, is down about six per cent from the end of the second quarter, and about 10 per cent for the year so far.

And "if you look at it today it's down another two per cent," said Paul Forestell, retirement profession leader at Mercer.

The index is a theoretical pension plan that was 100 per cent funded at Jan. 1, 1999, meaning assets were equal to liabilities on that date.

The index is "being driven primarily right now by what's happening to stocks and bonds. If equity markets continue to fall and credit spreads continue to get bigger, this will continue down."

In the campaign for next Tuesday's federal election, the Liberals have suggested they might change the current rules to make it easier for seniors to deal with a drop in the value of their investment accounts because of the current bear stock market.

If implemented, the Liberal proposal on RRIFS would allow seniors to temporarily delay withdrawals from their plans until the financial markets recover, allowing assets to regain some of their value.

Liberal Leader Stephane Dion has said he is prepared to study the idea, but has declined to make any announcement while on the election campaign trail.

"CARP has been on the record suggesting that they do this permanently, not just in a market downturn," said Susan Eng, vice-president of advocacy for the Canadian Association of Retired Persons.

"I don't know why they have to study it. We've studied it to death."

Dion earlier this week said that he wants to wait until he has consulted the experts and has "all the facts in his hands" before deciding what to do.

RRIF holders would rather not be forced to sell assets in their savings accounts when stock markets are plunging, said Eng.

Also "we've got an issue where people are living longer, so they'd rather keep their money in a tax-free fund for longer," she said.

"Dion has identified an important way of removing the salt from the wound, but the wound is still there."

John Parker, vice-president and CFO of the Investment Funds Institute of Canada, says his group also supports the idea of making RRIFS more flexible.

"We're in favour of anything that would provide seniors more flexibility with their retirement, particularly now with their financial troubles," said Parker, whose group represents most of Canada's mutual fund companies.

"It's a relatively small step. But it's a step in the right direction."

Last year, the government of Prime Minister Stephen Harper increased the age by which seniors were required to transfer their RRSPs to RRIFs to 71 from 69.

"The changing of the age limit, that was also a significant step in the right direction," said Parker.