Here’s what the Conservative savings plan for seniors means

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The federal Conservatives floated a plan targeting older voters on Wednesday, pledging to lower taxes for seniors and to extend the window for retirement savings.

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In a statement on their website, the Conservatives said they would allow working seniors to earn as much as $34,000 a year without paying income tax.

They also proposed pushing the registered retirement savings plan (RRSP) age limit from 71 to 73 and promised to hold the retirement age at 65 for Canada Pension Plan (CPP), Old Age Security (OAS) and Guaranteed Income Supplement (GIS) qualification.

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“Our seniors should not have to work. But they should not be punished when they choose to,” said Conservative Party leader Pierre Poilievre in a statement. “We should reward rather than punish work. Those that choose to grow their savings for longer should have the chance.”

Here’s what the Conservative plan means for older Canadians.

How would the income-tax break work?

Regardless of age, all Canadian tax filers can claim a basic personal amount (BPA), which is $15,705 for 2024.

Filers who are 65 and older and within a set income limit can also claim a non-refundable tax credit. This amount is currently $8,790 for seniors with income of $44,325 or less, but varies for those with incomes between $44,325 and $102,925.

This means seniors can currently earn up to about $24,500 without paying taxes.

Jamie Golombek, managing director in tax and estate planning at Canadian Imperial Bank of Commerce (CIBC) Private Wealth, highlighted the wording of the Conservatives’ statement, which suggested only working seniors would benefit from the lower taxes promised by the party.

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“I suspect that (extra) $10,000 to be tax free, assuming it’s from employment income,” Golombek said. “It would be an incentive to get people to continue working … and allow them to keep (more of that money).”

Canada’s population is continuing to age. According to the most recent data from Statistics Canada, nearly one-fifth (18.9 per cent) of the population was at least 65 years of age in 2023, up from 12.6 per cent in 2000.

A separate Statistics Canada survey found one in five seniors aged 65 to 74 worked in 2022 — nearly half of them by necessity, with immigrant seniors more likely to extend their employment than their Canadian-born counterparts.

How would the RRSP extension work?

The Conservatives also said they would extend the RRSP age limit to 73, which means Canadians can contribute to their plans for an extra two years.

The RRSP age limit currently stands at 71, at which point seniors must withdraw their funds as a lump sum, use the funds to purchase an annuity or convert their RRSP into a Registered Retirement Income Fund (RRIF) and make minimum withdrawals each year.

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These minimum withdrawals depend on factors like your age (the older you are, the higher the percentage that needs to be withdrawn) and the total value in the RRIF.

Any funds within the RRIF can grow tax-free, until you make withdrawals, which are considered taxable income.

Golombek said he’s been advocating for an extension in the age limit for a while to allow seniors the opportunity to grow their savings further.

“It used to be that people retired magically at age 65 — and that’s why most people took OAS, CPP and GIS at 65 — but with people continuing to work longer … (the Conservatives’ proposal) allows them to continue to grow their pool of retirement funds a couple of extra years,” said Golombek.

“They will have more money for retirement and even contribute to that retirement during those working years.”

Will extending the age limit for RRSPs broaden their appeal?

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Lu Zhang, a finance professor at Toronto Metropolitan University’s Ted Rogers School of Management, co-authored a 2023 paper exploring how TFSAs have become more popular than RRSPs. Although TFSAs have no upper age limit, contributions are limited to a specific dollar value (in 2025, the contribution limit is $7,000).

RRSPs, on the other hand, allow you to contribute 18 per cent of your earned income for that year, up to $32,490 in 2025.

“We discovered in that paper that people tend to use TFSA to replace RRSP savings,” she said. “That trend was especially significant for seniors because … they started moving money out of their RRSP to TFSA and other saving vehicles to avoid that deadline at age of 71.”

Zhang expects that extending the RRSP maturity age would broaden the appeal for this retirement savings plan.

However, Golombek said the general rule is that if someone is in a relatively higher tax bracket while they are working and expect to be in a lower tax bracket once they retire, RRSPs beat TFSAs.

“For most Canadians, RRSPs will beat out TFSA because most Canadians will be in a lower tax bracket when they retire than they were when working,” said Golombek.

The Conservatives have yet to release more details on their senior savings plan, including how it might be funded.

• Email: slouis@postmedia.com

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