Between 2000 and 2013, fewer and fewer 25- to 54-year-olds used registered retirement savings plans, a study from Statistics Canada has found.
The number of individuals using the savings vehicle dropped by 16 per cent to 4.2 million, and the total value of annual contributions fell by 26 per cent to $22.5 billion.
At the same time, the number of withdrawals jumped by more than 30 per cent, primarily due to an increase in defaults on repayments to RRSPs under the homebuyers’ plan. But because the value of these defaults are often small, the annual value of withdrawals remained stable at roughly $5 billion. And not counting defaults through the homebuyers’ plan, half of those making withdrawals also contributed to their RRSPs in the same year.
The two largest annual declines occurred in 2008 and 2009, which coincided with the recession and the introduction of tax-free savings accounts.
As RRSP use declined, TFSA contributions increased to $15.9 billion in 2013 from $9 billion in 2009. Yet many Canadians also withdraw from their TFSAs. In 2013, they withdrew 47 per cent of all of the money they contributed.
Among taxpayers who contributed to an RRSP at least once between 2005 and 2008, those in the bottom half of the income distribution are more likely to switch to TFSA contributions. Statistics Canada suggests that’s because of differing incentives for each savings vehicle.
From 2009-13, those in the the bottom income quartile had a nine per cent chance of contributing to an RRSP or a TFSA. Those in the top income quartile had a 60 per cent chance of doing so.