It’s RRSP season and federal Finance Minister Ralph Goodale is being pressured to invoke major changes to the regulations surrounding contribution limits.
Large banks such as Toronto Dominion are urging the government to raise the RRSP ceiling so that Canadians can contribute more to their retirement savings.
It’s no surprise that banks are anxious for people to devote more money to RRSPs. Perhaps the bigger concern should be among those who invest their hard-earned salaries in RRSPs and among a generation which, more than ever, needs to get serious about retirement savings.
As contract work and the world of E-lancers (electronic freelancers) become prevalent, the days of having the same job at the same company for several decades are coming to an end. With the fallout of the technology boom and more employers looking for quick, project-based results, more and more individuals are becoming independent consultants — a career choice that comes without a pension.
Given the wave of contract workers quickly taking over, the pressure being put on the government to raise the RRSP contribution limit is certainly warranted. The current limit is $16,500 per year, to be raised to $18,000 next year, and then indexed to inflation moving forward.
As many contractors look for ways to save for retirement, the $27,000 RRSP maximum being proposed by the Investment Funds Institute of Canada would be considerably more helpful than the current allowable limit.
RRSPs are valuable in more ways than one. Not only are they useful in creating a significant retirement fund, but they can also be withdrawn early to help in purchasing a new home, or to simply get by while between jobs. This is especially important for contract workers, who might be employed for a specific term, and then suddenly out of work for several months. If Canadians are permitted to invest more while they are employed, they will also have an increased chance at security when they are out of a job.
Raising the RRSP ceiling would not only benefit those without pensions; it would also benefit Canadians whose employers do offer retirement savings plans. Although having a company-based pension is useful, it also greatly reduces the amount of money a person is allowed to contribute to an RRSP fund. Thus, raising the limit would allow Canadians more flexibility in saving for retirement.
The obvious government concern is that raising the RRSP ceiling means allowing people additional non-taxable income. But perhaps the government should be more concerned with the positive long-term effects that increased limits could have. While it would amount to less tax dollars now, it would also mean that more Canadians would have increased savings when they retire, which could lead to much less dependency on government services down the road.