In its submission to the House of Commons Standing Committee on Finance in anticipation of the 2009 federal budget, the Investment Funds Institute of Canada offers several proposals aimed at improving income flexibility in retirement for Canadians.

IFIC notes two major issues that are front and centre of retirement issues. The first is the unknown impact on the Canadian economy in general and government social programs in particular of retiring baby boomers as they move from a savings culture to a “disinvesting” one in which they begin to live off their retirement savings.

The second is whether the younger generation, expected to be the recipients of the transfer of significant intergenerational wealth, will have a different perspective on savings and consumption than their parents.

Last year the federal government took a major step forward in terms of enhancing the ability of Canadians to save with the introduction of the Tax-Free Savings Account, says Joanne De Laurentiis, president & CEO of IFIC. “This vehicle will provide Canadians with more flexibility in their approach to savings. But we believe that further changes on the retirement savings front are important.”

In its submission IFIC outlined a number of recommendations the Committee should contemplate including:

> assess preserving the beneficial tax treatment of Canadian dividends when earned inside of registered plans;

> allowing pension income-splitting with a spouse or partner beginning at age 55 (instead of the current 65) for all registered plans, including RRIFs;

> allowing beneficiaries of registered plans to claim a capital loss or adjust the amount included in a deceased’s terminal tax return to reflect any decline in plan value between the deceased’s death and distribution to beneficiaries of plan proceeds;

> eliminating the dividend gross-up from the “net income” calculation for the purposes of computing the Old Age Security (OAS) and Guaranteed Income Supplement (GIS) clawbacks;

> increasing pension plan transfer limits and adjusting them for interest and mortality changes going forward; and

> eliminating or reducing the RRIF minimum withdrawal factors.

“These proposals go a long way towards providing Canadians with the options necessary to ensure income flexibility in retirement, allowing for better choices both before and during retirement,” says De Laurentiis.