News Article

Is it time for the government to raise the 18% limitation restricting contributions to an RRSP by lower income earners?

Comments

I can only see that benefiting higher income people rather than lower income

By Nancy Chesher on February 15, 2017

In my practice I do not have any low income earners who have utilized all their available RRSP Limit.  If the Gov’t matched a percentage of the contribution this would be more beneficial for low income individuals.

By WEM on February 15, 2017

RRSP raised is a great idea, but should be rewarded for saving by paying a lower tax since the government is saving some money.  The better question would be offering a NEW CPP Tax saving to be able to self direct and be TAX FREE exempt on withdrawal. There are lots of people who do without and plan ahead who won’t require GIS and the government will be saving.  It also should not affect the OAS.
Several who save and with their pension are penalized because it isn’t in their best interest to contribute to an RRSP, and the only way around it is through and insurance.
Raising the TFSA is a better option, to provide more options through out the year for emergency saving and allowing it from the age of 12 to encourage young children to save for their education.
Lowering the retail tax would be a better reward and provide more funds to save for their retirement, education.

By Joanne Bedard on February 14, 2017

Should the 18% limitation on RRSP contributions be raised – in general, yes to encourage additional savings for retirement – but it is unlikely to benefit low income earners.  According to Stats Can only slightly over 23% of tax filers contributed to an RRSP for the five years ending in 2014, the last year data was available.  A study by H&R Block Canada showed only about 18% planned to contribute for the 2015 tax year.  Surveys by Royal Bank and BMO indicated other expenses took priority and insufficient funds were left for a contribution.  Many people did not know how contributions would affect their taxes.  Of those who did contribute, a majority did not contribute the maximum.  Most lower income earners are paying current expenses and have little, if any, left for saving.  As many people now choose TFSAs over RRSPs, because they are more flexible and funds can be removed without penalty, desirability of maximum contributions to RRSPs is further reduced.  For low income earners, a TFSA may be better so the GIS will be available in retirement.

By Martin on February 08, 2017

Should the 18% limitation on RRSP contributions be raised – in general, yes to encourage additional savings for retirement – but it is unlikely to benefit low income earners.  According to Stats Can only slightly over 23% of tax filers contributed to an RRSP for the five years ending in 2014, the last year data was available.  A study by H&R Block Canada showed only about 18% planned to contribute for the 2015 tax year.  Surveys by Royal Bank and BMO indicated other expenses took priority and insufficient funds were left for a contribution.  Many people did not know how contributions would affect their taxes.  Of those who did contribute, a majority did not contribute the maximum.  Most lower income earners are paying current expenses and have little, if any, left for saving.  As many people now choose TFSAs over RRSPs, because they are more flexible and funds can be removed without penalty, desirability of maximum contributions to RRSPs is further reduced.  For low income earners, a TFSA may be better so the GIS will be available in retirement.

By Martin on February 08, 2017

Raising the limit is a good idea. However investing in an RRSP is not so much in my opinion! Low income earners will be far better off investing in a TFSA.  I found out that with OAP claw back and other taxes assessed an my RRSP withdrawals the total tax bill amounted to 72% of the amount withdrawn.

By Don on February 08, 2017

What a lot of people probably don’t realize is that the 18% RRSP contribution rate was determined by professional actuaries back in 1990 to be actuarially equivalent to the employee and employer contributions made to defined benefit pension plan earning 2% of earnings for each year of service to maximize about 70% of pre-retirement earnings after 35 years of pension contributions. The actuaries who determined this equivalency also concluded that someone who was in this so-called cadillac pension plan would still be able to contribute $600 to an RRSP each year. However, the Liberal dominated senate back then determined in their wisdom that this amount should be $1,000 and so with a stoke of the pen that’s what the final legislation said and it’s been that way ever since. So, theoretically, if the RRSP contribution rate were to be increased above 18% then the contributor would actually be saving more for retirement than a similar person who is a member of a cadillac defined benefit pension plan. The idea back in 1990 was that the maximum contribution to all retirement plans combined, whether defined benefit pension plan, defined contribution (money purchase) pension plan or RRSP should be 18%. So, increasing one leg of the retirement stool without considering the other legs would likely not be a good thing.

By Brian Fraser on February 03, 2017

Low earners, high earners, it doesn’t matter. The rate used to be 20% of earned income and should be more like 25% for everyone (although most couldn’t manage that much). Then there’s the TFSA, especially good for low income earners. We need to be a nation of savers again (oh, yes, we were once known for that) able to take care of ourselves rather than depending on paternalistic governments for our financial well being.

By Alan Caplan on February 01, 2017

Is this something that is actually being discussed?  And what is the definition of “lower income earners?”

RRSP’s are not good value for most lower income earners at all, and a net zero proposition for most middle income earners as well.  The whole idea is to contribute at a higher tax rate, and withdraw at a lower tax rate - and this does not appear to be the situation come retirement for a lot of people who fall into these groups.

They should be looking at renaming the TFSA’s to create less confusion, creating better education as to their benefits, and creating more contribution space here, rather than RRSP’s.

By AK on February 01, 2017

The limit should be raised to 25% it’s hard for low income earners to accumulate enough personal wealth for a secure senior years and frugality is one of their best avenues. Having said that I would encourage max contributions to a TFSA before considering an RRSP

By Don on February 01, 2017

Raising the RRSP % is not a simple course of action. It has always been tied to pension plan contributions, i.e. pension adjustment. Raising the % could therefore increase the limits on pension contributions. If you are a ” low income earner “, you don’t have any ” extra ” funds to put towards an RRSP. Therefore any increase in the % allowed to be contributed would only benefit those with “excess” funds. Sounds good on paper, as long as you are well off to start. Leave the 18% as is, and do not allow anybody with a pension plan to contribute to an RRSP at all.
Got to go, I can hear the backlash already.

By KEN on February 01, 2017

Contributions should be encouraged, not the opposite despite the income level

By ryan beebe on February 01, 2017