Federal tax rules are preventing many Canadians—especially those in the private sector—from saving enough for retirement, according to a report released by the C.D. Howe Institute and co-authored by James Pierlot, a member of Benefits Canada’s online expert panel.
The report, Legal for Life: Why Canadians Need a Lifetime Retirement Saving Limit, says that workers relying on RRSPs cannot accumulate even half the retirement wealth of members of DB plans.
“Solving this ‘have’ and ‘have-not’ divide in the pension outlook for Canadians is becoming urgent,” says Pierlot.
The study examined contribution and benefit limits in “tax-assisted” DB plans, DC plans and RRSPs, and found that while members of DB plans can accumulate retirement savings worth as much as 60% of their total career incomes, tax rules are preventing RRSP and DC plan members from saving enough.
To remedy the issue, the authors propose that Canada’s annual, income-based tax limits on retirement saving be discarded and replaced with a uniform, inflation-indexed lifetime accumulation limit.
James Pierlot will cover this topic in more detail in an upcoming blog post.