Human Resources 101

Phased Retirement
The Income Tax Regulations currently prohibit phased retirement arrangements by preventing employees from accruing pension benefits under a defined benefit registered pension plan if they receive a pension from the plan of the same or a related employer.

The Budget proposes to permit an employer to simultaneously pay a partial pension to an employee and provide further pension benefit accruals to the employee. A corresponding reduction in salary or work time will not be required. The measure will apply only to employees aged 55 years and over who are entitled to an unreduced pension. These changes will come into effect beginning in 2008.

Increasing the Age Limit for Maturing RPPs and RRSPs
The Income Tax Act currently requires that contributions to an individual�s registered retirement savings plan (RRSP) cease and the funds be converted to a registered retirement income fund (RRIF), or to be used to acquire a qualifying annuity, by the end of the year in which the individual turns 69 years of age. Similarly, registered pension plan (RPP) payments must generally begin by the end of the year in which the pension plan member turns 69 years of age and accruals must cease at such time.

The Budget proposes to increase the RRSP/RPP maturation age limit to 71 years of age, effective for the 2007 and subsequent taxation years.

RRIF owners must withdraw a specified minimum amount each year following the year in which the RRIF is established. This requirement will be waived for 2007, for those RRIF owners who turn 71 years of age in 2007, and for 2007 and 2008, for those RRIF owners who turn 70 years of age in 2007.

RRSP Qualified Investments
The list of qualified investments that can be held by RRSPs and other registered plans will be expanded to include most investment-grade debt and publicly-listed securities. These changes will apply on or after March 19, 2007, and will provide registered plan investors with greater investment choice and diversification opportunities.

Pension Income Splitting
The Tax Fairness Plan released October 31, 2006 provided for the splitting of pension income between spouses and the Budget reaffirms the Government�s commitment to enact such plan.

For further information, please contact a member of Blakes Pension & Employee Benefits Group

March 2007 Federal Budget - Pension and Retirement Savings Changes – Article Preview.