Are group TFSAs a suitable replacement for outgoing Canada savings bond program?

The Canadian government will discontinue the Canada savings bond and Canada premium bonds program on Nov. 1, 2017.

While existing bonds will continue as usual until they mature or the purchaser redeems them, the option of buying them through a payroll savings program will now be off the table.

The program reached peak popularity in the 1980s, but the federal government announced in its 2017 budget that it would end the program. The government attributes the program’s decline to the “proliferation of higher-yielding alternative retail investment instruments,” such as government of Canada-insured retail products, mutual funds and low-commission trading accounts.

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Though an official communication will go out to all current contributors of the program, the government is encouraging employers to inform their employees about the change. Employers that still want to provide a payroll-deducted savings option could consider a group tax-free savings account, according to a release from Accompass Inc. However, it also noted that if a TFSA allows plan members to choose between two or more investment options, it must follow the guidelines associated with capital accumulation plans.

Such accounts should offer a diversified menu that considers different types of investors, says Debbie Patton, consultant at Accompass.

Patton refers to three key types of savers: the do-it-yourself individual, who’s going to be very engaged with the process, will do research and will want to have a hand in the selection; the delegator, who needs some structure in order to make choices but still wants some involvement; and the do-it-for-me saver, who simply wants to stay out of the process.

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When a program becomes a capital accumulation plan, employers should remember the key responsibilities they’re taking on, including fiduciary considerations, administrative duties, selecting and managing investments and ongoing communication efforts with employees, says Patton.

“Saving through payroll deduction is a convenient way for employees to save, and for those employees who are already in the habit of doing so, without the Canada savings bond, if you want to continue to encourage them to do that, TFSAs could be an appropriate way,” she says.

“But it could also provide some oversight and administrative responsibilities that the Canada savings bond did not provide for the employer,” she adds.