Poll Results: Raising RRSP Lower Limit Draws Thoughtful Response

Seventy two percent of the responders agree that the 18% limitation restricting contributions to an RRSP should be raised for lower income earners. However, there were several varying opinions on how this should be done and what else could be affected.  Below are some of the comments shared by voters:

Alan Caplan states: Low earners, high earners, it doesn’t matter.  The rate used to be 20% of earned income and should be more like 25% for everyone (although most couldn’t manage that much).  Then there’s the TFSA, especially good for low income earners.  We need to be a nation of savers again (oh, yes, we were once known for that) able to take care of ourselves rather than depending on paternalistic governments for our financial well being.

Don agrees with raising the limit: The limit should be raised to 25% its hard for low income earners to accumulate enough personal wealth for a secure senior years and frugality is one of their best avenues.  Having said that I would encourage max contributions to a TFSA before considering an RRSP.

Ken has a different view:  Raising the RRSP % is not a simple course of action.  It has always been tied to pension plan contributions, i.e. pension adjustment.  Raising the % could therefore increase the limits on pension contributions.  If you are a “low income earner”, you don’t have any “extra” funds to put towards an RRSP.  Therefore, any increase in the % allowed to be contributed would only benefit those with “excess” funds.  Sounds good on paper, as long as you are well off to start.  Leave the 18% as is and do not allow anybody with a pension plan to contribute to an RRSP at all.

Joanne says: RRSP raised is a great idea, but should be rewarded for saving by paying lower tax since the government is saving some money.  The better question would be offering a NEW CPP tax saving to be able to self direct and be TAX FREE exempt on withdrawal.  There are lots of people who do without and plan ahead who won’t require GIS (guaranteed income supplement) and the government will be saving. It also should not affect the OAS.  Several who save and with their pension are penalized because it isn’t in their best interest to contribute to an RRSP, and the only way around it is through insurance.  Raising the TFSA is a better option, to provide more options through out the year for emergency saving and allowing it from the age of 12 to encourage young people to save for their education.  Lowering the retail tax would be a better reward and provide more funds to save for retirement and education.

Martin shares some statistics on the RRSP:  Should the 18% limitation on RRSP contributions be raised – in general, yes to encourage additional savings for retirement – but it is unlikely to benefit low income earners.  According to Stats Can only slightly over 23% of tax filers contributed to an RRSP for the five years ending in 2014, the last year data was available. Surveys by Royal Bank and BMO indicated other expenses took priority and insufficient funds were left for a contribution.  Many people did not know how contributions would affect their taxes.  Of those who did contribute, a majority did not contribute the maximum.  Most lower income earners are paying current expenses and have little, if any, left for saving.  As many people now choose TFSA’s over RRSP’s, because they are more flexible and funds can be removed without penalty, desirability of maximum contributions to RRSPs is further reduced.  For low income earners, a TFSA may be better so the GIS will be available in retirement.

Thank you for your participation in this poll.

We invite you to look for our March poll - Do you support the cancellation of education and textbook credits in 2017, leaving only tuition fee credits for students and supporting individuals?

Refer a Friend	Research	Calculators	Course Trials