May 8: BEST FROM THE BLOGOSPHERE

May 8, 2023

Experts call for higher RRSP limits, and a later date for RRIFs

Writing in the Regina Leader-Post, a trio of financial experts is calling on Ottawa to make it easier for Canadians to save more for retirement — and then, on the back end, starting turning savings into income at a later date.

The opinion piece in the Leader-Post was authored by William Robson and Alexandre Laurin of the C.D. Howe Institute, and Don Drummond, a respected economist who now teaches at the School of Policy Studies at Queen’s University in Kingston, Ont.

Their article makes the point that our current registered retirement savings plan (RRSP) limits need to be changed.

“The current limit on saving in defined-contribution pension plans and RRSPs — 18 per cent of a person’s earned income — dates from 1992,” their article notes. While that 18 per cent figure may have been appropriate 30 years ago, “now, with people living longer and with yields on safe investments having fallen, it is badly out of line with reality,” the authors contend.

They recommend gradually raising the limit to 30 per cent of earned income through a four-year series of three per cent increases, the Leader-Post article notes.

While an RRSP is for saving, its close cousin, the registered retirement income fund (RRIF) is the registered vehicle designed for drawing down savings as retirement income. The trio of experts have some thoughts about RRIF rules as well.

The current RRIF rules compel us to “stop contributing to, and start drawing down, tax deferred savings in the year (Canadians) turn 71,” the authors note. This rule was also established in the early 1990s, they note.

“As returns on safe assets fell and longevity increased, these minimum withdrawals exposed ever more Canadians to a risk of outliving their savings,” the authors explain. They are calling for a reduction of the minimum withdrawal amount by “one percentage point, beginning with the 2023 taxation years, and further reduce them in future years until the risk of the average retiree depleting tax-deferred savings is negligible.”

OK, so we would raise RRSP contribution limits, and lower RRIF withdrawal amounts. What else do the three experts recommend?

They’d like to see it made possible for Tax Free Savings Account (TFSA) holders to buy annuities within their TFSAs.

“When an RRSP-holder buys an annuity with savings in an RRSP, the investment-income portion of the annuity continues to benefit from the tax-deferred accumulation that applied to the RRSP. But TFSA-holders cannot buy annuities inside their TFSAs, which means they end up paying tax on money that is intended to be tax-free. This difference disadvantages people who would be better off saving in TFSAs and discourages a much-needed expansion of the market for annuities in Canada,” they write.

Save with SPP has had the opportunity to hear all three of these gentlemen speak out on retirement-related issues over the years. They’ve put some thought into providing possible approaches to encouraging people to save more, making the savings last, and to make the TFSA into a better long-term income provider. Under new rules, you can now make an annual contribution to SPP up to the amount of your available RRSP room! And if you are transferring funds into SPP from an RRSP, there is no longer a limit on how much you can transfer! Check out SPP today — your retirement future with the plan is now limitless!

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Alexandre Laurin, C.D. Howe Institute, Don Drummond, Queen’s University, Regina Leader-Post, Registered Retirement Income Fund, Registered Retirement Savings Plan, RRIF, RRSP, RRSP limits, School of Policy Studies, Tax Free Savings Account, TFSA, William Robson

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