Canada

March 20, 2007

The Harper government laid out plans yesterday to help more seniors achieve semi-retirement, moves that should also help Canadian businesses hang on to much-needed experienced workers.

The two key steps are part of the Conservatives' broader effort to quell the anger among many seniors hurt by the government's decision in October to tax income trusts, a popular investment vehicle.

In one of the new measures, the government said it will begin allowing employers to pay a partial pension to an employee while that same worker is also contributing to the pension plan. This will make it easier for retired individuals to return to the work force part time.

It should help Canada's efforts to combat its skills shortage, which is expected to become an increasing problem as the work force ages. The change, expected to carry a small price tag for the government, is scheduled to take effect Jan. 1.

The government also said it will increase the age limit to 71 from 69 on registered retirement savings plans and registered pensions.

Income tax law has required that an individual's RRSP be converted to a registered retirement income fund, or be used to buy an annuity, by the end of the year in which the person turns 69.

Those rules, designed to ensure orderly recognition of retirement savings, will change to make 71 the trigger age.

"Many older Canadians want to continue working and saving," the budget document states. "As Canada's population ages, it will be important to allow them to do so."

The adoption of 71, expected to cost Ottawa about $130-million this fiscal year, is effective beginning in the 2007 tax year.

But Don Drummond, chief economist at Toronto-Dominion Bank, said the two measures will likely pay for themselves in the long run, because seniors will be encouraged to work and pay income taxes for more years.

Mr. Drummond said the two moves make sense, given the increasing need for skilled workers. "It's just reflective of the demographics."

Finance Minister Jim Flaherty's budget also contained three other measures to help seniors:

$10-million a year to New Horizons for Seniors, a program to fight telemarketing fraud and other abuse. The money, which brings the program's total annual budget to about $35-million, will be used to help pay for buildings, equipment and furnishings.

$45-million over three years for a new "enabling accessibility fund" to help cover the cost of improving physical accessibility for the disabled.

Provisions to allow couples to split pension income. The move, initially announced Oct. 31 along with the decision to tax income trusts, allows couples to cut their tax bill by evening out their income.

Pension income-splitting is believed to be costing the federal treasury about $700-million a year.

The government had earlier sent signals that it would offer income splitting for all couples but didn't find the fiscal room in this budget.