Reform RRSP/RPP system to halt erosion, says C.D. Howe Institute

At a minimum, RRSP contribution limits should be raised to $17,500 for 2003, with full indexing in the future. The current limit is $13,500, or 18% of an individual’s income, whichever is less. Pension accruals under defined benefit RPPs should be substantially increased, in line with the increases in RRSP limits. The annual percentage limit […]

By Jim MacDonald | December 19, 2002 | Last updated on December 19, 2002
3 min read
  • At a minimum, RRSP contribution limits should be raised to $17,500 for 2003, with full indexing in the future. The current limit is $13,500, or 18% of an individual’s income, whichever is less.
  • Pension accruals under defined benefit RPPs should be substantially increased, in line with the increases in RRSP limits.
  • The annual percentage limit of contributions to RRSPs and RPPs should be raised to 20% of income, with consideration to further increasing it to 30%.
  • Taxable withdrawals from an RRSP in a year should create additional future RRSP contribution room.
  • Pension “withdrawals” from RPPs should create future RRSP contribution room in the same way as withdrawals from RRSPs.
  • The age limit at which RRSPs must be converted to RRIFs — currently 69 — should be raised to at least 71, but the authors argue 73 would be more appropriate, given rising life expectancies in Canada.

For several years Ottawa has been the target of a lobbying campaign to have RRSP/RPP contribution limits raised. Federal Finance Minister John Manley heard this call again in recent months while he conducted pre-budget hearings. Then on November 29, the influential Commons finance committee recommended the government raise annual RRSP and RPP contribution limits to $19,000.

Canadians do not appear to be discouraged from investing in their RRSPS this year by the slumping stock market. A Decima Research survey released late last month found 49% of Canadians said they would contribute the same amount to their RRSP as last year. Another 24% said they would contribute more, while about 20% would contribute less.

A total of 6.2 million tax filers contributed just over $28.4 billion to their RRSPs in 2001, according to Statistics Canada. The 2001 total decreased slightly from 2000, when Canadians contributed $29.3 billion.

How do you think our system for saving for retirement should be reformed, if at all? What recommendations would you like to see Manley implement? Share your views in the “Free For All” forum of the Talvest Town Hall on Advisor.ca.

Filed by Jim MacDonald, Advisor.ca, jmacdonald@advisor.ca.

(12/19/02)

Jim MacDonald

  • At a minimum, RRSP contribution limits should be raised to $17,500 for 2003, with full indexing in the future. The current limit is $13,500, or 18% of an individual’s income, whichever is less.
  • Pension accruals under defined benefit RPPs should be substantially increased, in line with the increases in RRSP limits.
  • The annual percentage limit of contributions to RRSPs and RPPs should be raised to 20% of income, with consideration to further increasing it to 30%.
  • Taxable withdrawals from an RRSP in a year should create additional future RRSP contribution room.
  • Pension “withdrawals” from RPPs should create future RRSP contribution room in the same way as withdrawals from RRSPs.
  • The age limit at which RRSPs must be converted to RRIFs — currently 69 — should be raised to at least 71, but the authors argue 73 would be more appropriate, given rising life expectancies in Canada.

For several years Ottawa has been the target of a lobbying campaign to have RRSP/RPP contribution limits raised. Federal Finance Minister John Manley heard this call again in recent months while he conducted pre-budget hearings. Then on November 29, the influential Commons finance committee recommended the government raise annual RRSP and RPP contribution limits to $19,000.

Canadians do not appear to be discouraged from investing in their RRSPS this year by the slumping stock market. A Decima Research survey released late last month found 49% of Canadians said they would contribute the same amount to their RRSP as last year. Another 24% said they would contribute more, while about 20% would contribute less.

A total of 6.2 million tax filers contributed just over $28.4 billion to their RRSPs in 2001, according to Statistics Canada. The 2001 total decreased slightly from 2000, when Canadians contributed $29.3 billion.

How do you think our system for saving for retirement should be reformed, if at all? What recommendations would you like to see Manley implement? Share your views in the “Free For All” forum of the Talvest Town Hall on Advisor.ca.

Filed by Jim MacDonald, Advisor.ca, jmacdonald@advisor.ca.

(12/19/02)