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George & Bell Consulting Advocates for COVID-19 Plan for Registered Retirement Savings Plan (RRSP) Withdrawals

George & Bell Consulting Advocates for COVID-19 Plan for Registered Retirement Savings Plan (RRSP) Withdrawals

April 3, 2020. Category: COVID-19, Firm News, RRSP. Comments Off on George & Bell Consulting Advocates for COVID-19 Plan for Registered Retirement Savings Plan (RRSP) Withdrawals.
Written by George & Bell Consulting.

George & Bell Consulting is calling on the Government of Canada to allow non-punitive RRSP withdrawals for Canadians to meet short-term financial needs, called the “COVID-19 Plan”.

Currently, Canadians can withdraw assets from their RRSPs at any time, but the treatment on withdrawal is generally punitive:

  • Withdrawals result in personal income tax on the total amount of the withdrawal.
  • Re-contributions of withdrawn assets at a later date are only possible by consuming RRSP contribution room (effectively, the withdrawal results in a permanent loss of RRSP room).

The effect of this treatment is that Canadians are encouraged to leave their RRSPs invested to provide income during retirement. In other words, Canadians are discouraged from using RRSPs as a savings plan or a bank account.  In normal times, this long-term focus is a reasonable policy.

Two RRSP withdrawal programs exist, though, that provide for RRSP withdrawals on fair terms for short-term needs: the Home Buyers’ Plan and the Lifelong Learning Plan.  With both programs:

  • Withdrawals do not attract income tax when withdrawn.
  • Re-contributions are allowable and are required over a long period of time (10 or 15 years) regardless of RRSP room.

The COVID-19 pandemic represents an acute short-term financial need for many Canadians.  These acute short-term financial needs will result in many Canadians setting aside long-term retirement planning in favour of rent, mortgages, food and other obligations.  Canadians will make withdrawals from their RRSPs.  They should be provided access to these withdrawals on a non-punitive basis.

George & Bell’s Proposal: COVID-19 Plan

We propose the introduction of a new RRSP withdrawal program, called the COVID-19 Plan.  The terms of this program would closely mirror the existing Home Buyers’ Plan:

  • Allow all Canadians to withdraw up to $35,000 from RRSP during 2020.
  • Withdrawal would not attract withholding taxes or personal income tax.
  • Allow up to 15 years for repayment of the withdrawal, with no impact on RRSP room.

The COVID-19 Plan would allow Canadians with RRSPs to set aside long-term retirement planning in order to focus on immediate needs.  This makes sense for those buying a house (Home Buyers’ Plan) and those going to school (Lifelong Learning Plan).  Clearly, it makes sense during a pandemic.

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