Government changes to savings system can help Canadians prepare for retirement

Since the 2008-2009 economic crisis, Canadians have had a harder time accumulating wealth for retirement purposes. Governments have also been feeling the pinch and are not in position to increase spending on retirement benefits. But, according to a report released today by The School of Public Policy, there are still several measures government can take to help Canadians save for retirement.

Report authors Jack Mintz and Thomas Wilson argue that a series of policy reforms would lend savers a hand without cutting into government revenue in the long run.

“The reforms need not be far-reaching to have a meaningful impact,” the authors write. “And they need not be costly, either.”

The policy reforms that Mintz and Wilson propose include the following:

  • Expansion of the Canada Pension Plan (CPP) to allow larger contributions — shared by employers and employees, or covered entirely by employees — that would, in turn, allow retiring workers to draw a larger maximum pension, rather than having to rely on the guaranteed income supplement (GIS).
  • CPP contributions could be made deductible from taxable income, like RRSP investments, to encourage workers to maximize contributions.
  • To minimize an increase in payroll taxes, the eligibility age for CPP benefits could be increased to 67 years of age, similar to old-age security eligibility.
  • Tax treatment of group RRSPs — for which employer contributions are currently subject to payroll taxes — should be made the same as it is for defined-contribution registered pension plans (RPPs). Increased age limit for RPP and RRSP contributions, from 71 to 75 years, to reflect the increase in life expectancies.
  • RRSP contributions can be altered to allow lifetime averaging, allowing workers to take advantage of additional contribution room.
  • Increased contribution limits on Tax-Free Savings Accounts
  • Creation of a capital-gains deferral account to allow investors to sell off underperforming assets, without fear of triggering a tax bill, as long as they reinvest the proceeds.

The report can be found here.

Watch Professor Mintz describe his findings.