Changes to tax rules can improve Canadians’ retirement security and make the retirement system more equitable, according to a new report by the C.D. Howe Institute.
The report argued in favour of key changes to the accumulation phase, such as more equitable tax-deferred registered wealth accumulation limits, changes to the tax recognition of administrative expenses in group registered retirement savings plans and the creation of a new tax-prepaid option for long-term retirement capital accumulation.
In terms of decumulation, the report recommended adding annuities to the list of investment products that can be held in a tax-free savings account and increasing the age to which individuals can defer the Canada Pension Plan, the Quebec Pension Plan and old-age security benefits.
“It is crucial for private sector workers to prioritize savings as they often struggle to save enough,” noted the report. “To address this issue, we propose several tax-related policy changes intended to enhance the accessibility and adequacy of retirement savings. We are confident that these changes will greatly benefit the majority of private sector workers.”
The report also said variable payment life annuities can help mitigate longevity risk and support a better retirement lifestyle. However, it said the efficacy of VPLAs as a large-scale decumulation solution is currently restrained due to tax legislation limiting the establishment of VPLAs to specific types of pension plans.
“The new regulatory framework should avoid overly prescriptive and burdensome administrative requirements, allow for pooling of members across different jurisdictions and allow for simple registration process to transfer funds.”