Federal Budget 2019 – A deeper analysis on proposed retirement security measures

April 02, 2019
Budget 2019 puzzle piece.

On budget day, we highlighted the main promises that could impact our members. This week and next we will be writing more thorough analyses on retirement security, health and pharmacare, veterans’ wellbeing, and other issues.

This week, we’re digging into retirement security. Stay tuned, though – we’ll soon dig into proposed changes that might impact how you handle your RRSPs as you age.


Retirement security took a prominent position in this government’s advertisement of this pre-election budget, and while a few proposals seem like good measures to boost retirement security, the budget plan is light on details and some measures may even fall flat.

There were promises to expand the Guaranteed Income Supplement (GIS) earnings exemption, proactively enroll individuals who have not applied for the Canada Pension Plan (CPP), make changes to how insolvency proceedings and their impact on employees and retirees, and a quick note on upping the surplus limit for federal public sector pension plans.


Active CPP enrollment

First, we applaud the government’s decision to introduce legislative amendments to proactively enroll CPP contributors who are age 70 or older in 2020 but have not yet applied to receive their retirement benefit. As noted in the budget, some individuals choose to wait until they are 70 so that when they do receive CPP benefits, they will see an increase in their pension amount – however, there are seniors who are not receiving their CPP. For any number reasons, some may have applied for their CPP benefit late or not at all. Many of these individuals are low-income seniors.


Targeting GIS recipients

Low-income seniors will also be targeted by the GIS changes set to take effect in 2020-2021. Currently, if you collect the GIS (an additional Old Age Security benefit for low-income seniors) you can earn $3,500 a year in employment income (not self-employment) without a reduction in your GIS benefits. If you earn more than that, you’ll see a reduction in your GIS of fifty cents for every dollar of income you take in.

The 2019 Federal Budget proposes to change the income earning exemption so that it allows self-employment income, to increase the amount of the full exemption to $5,000 a year, and to introduce a partial exemption (of 50%) to apply to up to $10,000 of annual income for each GIS or Allowance recipient as well as their spouse. The intent is to allow low-income seniors to take home more money while they work, without having their GIS reduced.

The budget estimates that seniors who receive GIS and who have self-employment income would have a slight advantage, since there’s currently no exemption for self-employment income. “Seniorpreneurs” are on the rise and increased economic participation by groups that have traditionally had low participation is seen in some quarters as a necessary boon to the economy, especially with our maturing demographic.

At first glance, the GIS measure will help working seniors earn more, but it isn’t perfectly compatible with a “secure and dignified retirement”. If this measure will in fact cost the $1.76-billion over four years the federal government has earmarked, it’s because they expect many Canadians will take advantage of it. The implication?  A lot of seniors are required to continue working to supplement their low income. For many, a secure retirement income is still unachievable.


Surplus limit increase for federal government pension plans

Federal retirees and veterans from the Canadian Armed Forces and RCMP should take note of one pension-related commitment: the government plans to introduce legislation that would amend the federal public sector pension plans by increasing their surplus limit from 10 per cent to 25 per cent of the plans’ liabilities. 


Unspecified measures for pensions in corporate bankruptcies

The budget also proposes amendments to the Companies’ Creditors Arrangement Act and the Pension Benefits Standards Act, 1985, to “better protect workplace pensions in the event of corporate insolvency”. The government claims to want to make insolvency proceedings fairer, more transparent and accessible for pensioners and workers. They say they will make changes to corporate law to set higher expectations and oversight of corporate behavior, as well as proposing measures that will clarify that in federal pension law, if a plan is wound up it must provide the same pension benefits as when it was ongoing. While changes are necessary and welcomed, particularly in the wake of hits to pensions for Sears Canada retirees, there just isn’t enough detail in this section of the federal budget.  –We will have to wait for legislation to see what these vague commitments mean, whether they’ll meet the needs of working and retired Canadians, and how any changes will be enforced.


Retirement security or home ownership for younger Canadians

Which brings us to one last impact to retirement security found under the affordable housing section of the budget. This budget proposes changes to the Home Buyers’ Plan. First-time home buyers can currently take out $25,000 from their Registered Retirement Savings Plan (RRSP) to use towards the purchase of a new home, or $50,000 for a couple – and the amount must be repaid to an RRSP within 15 years. The 2019 budget would allow first-time buyers to withdraw up to $35,000 from their RRSP, or $70,000 for a couple. Both scenarios would provide a substantial down payment.

But there’s something incongruent in talking about “secure and dignified retirements” in one section of the budget, while telling younger Canadians to dive deeper in their retirement savings to afford a home – particularly considering the high cost of homes in some markets. There are fewer and fewer defined benefit pension plans available to Canadians, and many Canadians are on their own in building up their retirement savings with products like RRSPs that just aren’t as efficient and effective as defined benefit plans. Saving at a younger age is necessary to make investment and interest gains on RRSPs count.  While a home is often a good investment, young Canadians should not be forced to give up their retirement funds to afford one.

While some of the changes promised and otherwise hinted at in Budget 2019 may lead to a more secure and dignified retirement for some Canadians, some measures simply miss the mark and others are lacking in detail. It’s too early to tell how some Budget 2019 measures will play out, but one thing is sure.

On retirement income security, Budget 2019 has left a lot of room for parties to talk about retirement security in their election platforms and to jockey for position with a key voting demographic: older Canadians.