The requirement that RRSPs be converted into RRIFs at age 69 results in small increases in average income and taxes, suggests a new study by Statistics Canada.

This study, which assesses the impact of this process on income and taxes, showed that in 2002 RRIF conversion provided a net income boost of about $1,600 for 70-year-old seniors. This was equivalent to about 6.6% of their 2001 income. However, the taxable income of these individuals increased by only $800, or 3.2%.

Also, average taxes paid increased from $4,000 in 2001 to $4,200 in 2002, or about $40 million for the entire cohort. “Although the gain in taxes paid nudged the average tax rate only from 16.1% to 16.3% in 2002, it represented an effective tax rate of 25% on the $800 increase in taxable income,” it noted.

The study also showed that high-income earners were much more likely to have significant income gains as a result of conversion. Among low-income earners, a small percentage lost some of their Guaranteed Income Supplement entitlement as a result of RRIF income coming on stream.

The study divided the entire cohort of 69-year-old taxfilers into five equal groups based on income. It showed that about 3% of the group with the lowest income experienced more than a 5% increase in income at the age of 70. In contrast, 43% of the group with the highest incomes experienced more than a 5% gain. This suggests that much of the outflow from RRSPs will be taxed at relatively high marginal rates, StatsCan said.