Some Canadians cooling to the RRSP
(Special) – The Registered Retirement Savings Plan (RRSP) has been one of the main pillars of retirement saving for six decades, but a recent poll has found that almost one in seven Canadians are feeling indifferent toward or even negative about their plans and the RRSP season.
The poll by Mackenzie Investments has found that 68 per cent of Canadians say their mood to their RRSPs at the moment is indifferent. Only about 25 per cent said they feel confident going into the RRSP season and 23 per cent said they have negative (anxious/worried or confused) feelings toward the RRSP deadline.
Younger Canadians are significantly more likely to have negative feelings around the RRSP season than those in the 55-plus age group who appear to be more positive.
Canadians currently have more than $600 billion in unused contributions to their RRSPs.
“The RRSP season used to be rah-rah days but now they’re just hum-hum,” says Carol Bezaire, vice president of tax, estate and strategic philanthropy at Mackenzie Investments.
Bezaire says there may be several reasons for this shift in attitude.
Forty-two per cent of Canadians are making monthly contributions to their RRSPs so there’s no need to get excited and rush or do anything as the deadline nears. The poll found that Canadians who use a financial adviser are significantly more likely to be positive about the approaching RRSP deadline.
Many younger Canadians are putting money into their Tax Free Savings Accounts (TFSAs) rather than their RRSPs, primarily because their incomes are low and they cannot take advantage of the tax deduction that can come from contributing to an RRSP every year. Once they get established in their careers and start earning more they may turn to their RRSPs and get the tax deductions.
And thirdly, many older Canadians 55-plus have maximized their contributions to their RRSP and may not want to contribute any more for fear of increasing their income too much in retirement, which can result in a claw back in government plans such as the Old Age Security.
“A financial adviser will be able to tell you if you have too much in your RRSP and whether or where you should be investing most efficiently for your retirement,” Bezaire says.
Government-assisted programs such as the OAS, defined contribution and defined benefit pensions, and the RRSP/TFSA and other individual savings, are the three main pillars of retirement saving in Canada.
Tom Reid, senior vice president group retirement services with Sun Life Financial, says retirement income should be built from a balance of all three of those pillars. The system in Canada is out of whack because many Canadians do not participate in employer-sponsored pension plans and their income in retirement comes from pillars one and three.
The 2016 Mercer Melbourne global pension index report, which studies the pension preparedness of countries’ retirement systems to deal with the financial pressures of an aging population, ranks Canada eighth among nations participating in the survey in terms of pension adequacy. The Canadian index fell to 66.4 points in 2016 from 70.0 in 2015.
It says Canada’s system could be improved by increasing the coverage of employees in pension plans, increasing the level of household savings for middle income earners and increasing the participation of older people in the workforce as life expectancies rise.
“There’s a lot of research out there which shows that middle income Canadians are not saving enough for their retirement,” says Reid. “There is a gap in the system and we would like to see universal access to employment pension plans as a key government public policy objective. The path to improving the adequacy of pensions in this country is to improve universal accessibility to workplace pension plans.”
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.