Authors of a new report say that some simple changes to Canada's tax rules would improve retirement security and produce a fairer system
Some simple changes to Canada’s tax rules could make the retirement system more equitable for different types of saver and improve financial security for all.
That’s according to a new report from the CD Howe Institute’s Alexandre Laurin and George Turpie who believe that changing rules around capital accumulation plans (CAPs) would be a positive move.
“It is crucial for private sector workers to prioritize savings, as they often struggle to save enough,” the authors point out. “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.”
They propose making key changes to the accumulation phase of CAPs including:
- more equitable tax-deferred registered wealth accumulation limits
- changes to the tax recognition of administrative expenses in group RRSPs
- creation of a new tax-prepaid option for long-term retirement capital accumulation
For the decumulation phase, they propose adding annuities to the list of investment products that can be held in a TFSA and increasing the age to which individuals can defer their public pensions.
Simple changes to tax rules would improve retirement security, Laurin and Turpie argue in the report ‘Strengthening Retirement Income Security: Fairer Tax Rules and More Options Needed.’
“They will also make the retirement system more equitable among different classes of savers and more efficient in terms of managing decumulation risks, such as longevity, price inflation and market volatility,” the report states.
Outliving savings
The report notes that many Canadian seniors are relying on accumulated savings in registered plans and do not have access to defined-benefit pensions.
This can result in an excess of savings and a reduced retirement lifestyle as retirees fear outliving their accumulated funds.
While products such as Variable Payment Life Annuity (VPLA) can help seniors with CAPs lower their longevity risk at an affordable price, they are only available within certain pension plan types.
“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,” the authors conclude.
