RRSP overhaul needed to give retirees a fighting chance - IIAC

by Penelope Graham05 Aug 2016
Recent changes to the Canada Pension Plan aren’t enough to ensure retirees will be financially sound after leaving the workforce – or counter a growing reality of seniors outliving their savings.

An overhaul of the existing RRSP system is needed, says the Investment Industry Association of Canada (IIAC), adding retirees should have beyond the age of 71 to enjoy tax deferral on their savings.

The IIAC’s comments are part of recommendations to offer guidance to the House of Commons Standing Committee on Finance as it prepares the 2017 Federal Budget.

“It is critical the benefits of existing tax-assisted retirement savings program are adjusted to accommodate the changing demographics and the changing pattern of retirement savings,” states the IIAC. “With life expectancy steadily increasing and real returns on investments expected to remain low, many Canadians face a significant risk of outliving their savings.”

The association also calls for the government to reconsider existing tax-assisted vehicles, saying it has overlooked the importance of group RRSPs and arguing that employer-contributed funds shouldn’t be treated – and taxed – as additional income.

“This tax unfairness disenfranchises the many Canadians that rely on Group RRSPs from saving for their retirement,” the IIAC states. “For example, employer contributions to a Group RRSP are treated as earnings and, hence, payroll taxes like CPP and EI are deducted from those contributions. This uneven treatment is justified on the spurious grounds that Group RRSPs are not really a pension plan as funds can be withdrawn before formal retirement.”

According to the IIAC, there are approximately 34,948 companies that sponsor Group RRSPs for 2.82 million employees, with $74.3 billion under management.

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  • by Colin Campbell 2016-08-05 1:15:24 PM

    About time someone raised this issue. Nothing is gained by forcing individuals who choose not to retire to take income and not allow them to contribute. In fact it maybe that not allowing those over 71 to contribute is a charter of rights issue similar to the mandatory retirement age of 65 which is no longer enforced.

  • by Bob White, CLU 2016-08-09 5:55:21 PM

    Re the Group RRSP (GRSSP) being taxed. One can always make an argument for or against, as some will benefit differently based on their own circumstance.

    But in general it would make good sense that the GRSP not include all the other taxes, so people can save more for retirement. Proposed change in the idea of increasing CPP is a bad idea. CPP already discriminates against those who both working spouse pay max CPP, so why would anyone want to compound the problem. Go ask your MP what they know about this, and they will not have a clue. The changes took place in 1990 all provinces sign the documents, but I will bet there are few who even understand the discrimination taking place.

    So, I propose that a plan be created that required every Canadian to deposit funds to a Registered account that is a personal pension plan, and that it has restrictions like a regular pension plan to help levelize income at retirement, and the RRSP's can compliment and add the flexibility.

    The government needs to be out of the investment business, and set rules to allow individuals to make the choice as to who they want to advise the. But, government needs to set rules that direct people to be more responsible for their future and have the Pension/insurance companies build product to accommodate accumulating those assets with some guarantees as to maturity values, estate planning options that allow transfer of assets under a tax deferred basis into the same plans for Spouses and other beneficiaries even children for future retirement needs.

    Can you imagine $30,000 transferring into a 25 year olds retirement plan what it would be worth, even at 4% it would have a value of $144,000. Not a bad thing to help reduce depending on government benefits.