Do you think because you have a group RRSP a pension plan isn’t necessary? If you want employees to start saving for retirement it is. A new survey shows that as a savings tool, the RRSPs remains woefully underutilized.
A recent survey by BMO Financial Group revealed only 39% Canadians made an RRSP contribution, well below 50% as had been predicted by an earlier survey by the bank.
“We are quite surprised that the number of Canadians contributing to their RRSP has not increased this year, especially considering the upturn in our economy,” said Caroline Dabu, vice-president, retirement and financial planning strategy, BMO Financial Group. “However, we are encouraged that the vast majority of those who did make a contribution will be using their resulting tax refunds wisely and either reinvest the money or use it to pay bills or reduce their debt load.”
Not much has changed since the bank’s 2010 study, which found only 38% of respondents had contributed to their RRSP for the 2009 tax year.
Very few Canadians contribute the maximum amount for which they are eligible, resulting in about $500 billion in unused RRSP contribution room. The rate at which this number is growing every year, it is estimated to exceed $1 trillion by 2018, according to BMO Retirement Institute.
Lack of funds (67%) and lack of confidence (6%) were the two main factors that left most contributors feeling hamstrung while another 14% said they already have enough money saved to afford an ideal retirement lifestyle.
Dabu, however, insists that although contributing to an RRSP may seem like a big commitment, it does not have to be. “The key is to put aside an amount that meets your comfort level, even if it’s a modest sum.”
Those who did manage to contribute expect to use their tax refund for reinvesting in an RRSP or TFSA (33%). Another 32% of those who contributed plan to pay bills and/or pay off credit card balances; while 11% plan to use it to fund home renovations or household expenses.