|A Senate Committee report called for several changes to Canada’s retirement savings system, including a proposal to establish a voluntary retirement savings plan and a recommendation to allow Canadians an additional $100,000 lifetime contribution room in their Tax-Free Savings Accounts (TFSAs).|
Senator Michael Meighen, Chair of the Standing Senate Committee on Banking, Trade and Commerce, tabled the committee’s final report entitled Canadians Saving for their Future: A Secure Retirement in mid October. He noted that the committee found that certain groups of Canadians would benefit from changes to the retirement savings system, particularly middle-income Canadians, self-employed persons, and employees of small and medium-sized employers that do not offer occupational pension plans.
One of the report’s key recommendations is the creation of a Canada-wide voluntary plan that would enable participants to benefit from the lower fees and shared risk that could result from membership in a group.
The proposed plan would feature automatic enrolment, but allow opting out. Employee contributions would be locked in until retirement. Contributions could be eligible for consideration under RRSP or TFSA plans. The federal government has 90 days to respond to the Senate report. Also, such a new regime would require the support of the provinces.
Two of the guiding principles of the proposed plan proposal are “a limited number of professionally managed retirement funds that vary in their investment objectives….and a commitment to clarity, simplicity, efficiency, cost-effectiveness and low fees.”
Another report recommendation called on the government to allow additional lifetime contribution room of $100,000 to Tax Free Savings Accounts. This amount would be indexed to inflation. The Senate committee said this change could have several benefits, including using this extra room for financial windfalls such as severance payments, inheritances, real estate sale gains, etc.
Other recommendations from the Senate report include: retaining the RRSP contribution limit of 18% of earned income; permitting contributions to RRSPs until age 75; ensuring that withdrawals from RRSPs have no impact on eligibility for, or the amount of, federal income-tested benefits and tax credits. The report also recommends that “the government should take actions to encourage multi-employer pension plans, including registered retirement savings plan arrangements. Such arrangements should facilitate employer contributions on an employee's behalf. Employer contributions should be locked in for retirement purposes until the employee retires.”
This recommendation was strongly supported by the Canadian Life and Health Insurance Association (CLHIA) in a press statement released Wednesday. “There seems to be a Canadian consensus building around the opportunities that MEPPs provide for Canadians to save more effectively in the workplace,” notes Frank Swedlove, CLHIA President.