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The pivotal role of Pillar 1

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Retail Investor:

Quite correct but there is also another wrinkle being ignored. Any forced savings in either an expanded CPP or ORPP, or PRPP, etc will come at the expense of the low-income-earner’s contributions into a TFSA.

Most people are getting the message that in the bottom tax bracket, outcomes are better when saving in a TFSA (vs an RRSP). But all these new proposals have the same tax impacts as an RRSP. The income in retirement from these plans will be clawed back at a 50% tax rate (additional to the statutory rate).

These plans force people out of their better option (TFSA) and into a worse deferred-tax plan. See what a typical $40,000 wage earner income looks like in retirement (assumes 20% CPP benefit).

For this person the next $10,000 of pension-type income will be taxed at 72.5%. If allowed to use the TFSA there would be 0% tax. Lower income people would have smaller CPPs and more of their expanded CPP and ORPP and PRPP income will be taxed at that 72.5%.

This problem could be fixed if contr and w/drawals to these new plans bypassed the Tax Return. Have one tax rate for everyone. The account administrator deals directly with the government to both fund the ‘tax refund’ and collect on withdrawal.

Friday, October 17 at 10:13 am | Reply

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