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uneven treatment is justified on the spurious grounds that Group RRSPs are not really a pension plan as funds can be withdrawn before formal retirement.”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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