Advocis optimistic Ottawa will raise RRSP limits

(December 5, 2002) A recommendation by the Commons finance committee that the federal government raise the annual RRSP contribution limit to $19,000 is welcomed by the head of the country’s largest financial planning organization. Advocis chair Brian Mallard says he’s optimistic the finance minister will act on the suggestion when he brings down the next federal budget.

“We’ve been very vocal on the need for increased RRSP limits,” Mallard told Advisor.ca.

The current RRSP contribution limit is 18% of an individual’s annual income, to a maximum of $13,500. The limit has not changed since 1996, when it was lowered from $14,500. In its pre-budget submission, Advocis recommended indexing RRSP contribution limits up to $27,000.

Mallard says Ottawa committed to raising RRSP limits gradually years ago, but that initiative fell by the wayside in the effort to balance the budget. “They’re just catching up to where they were supposed to be in 1998 or 1999.”

An increase in the contribution limit is long overdue, Mallard says. “Of the [Organisation for Economic Cooperation and Development] countries, we have the lowest tax-supported retirement system and I believe we have the largest demographic bulge of baby boomers.”

That could be a problem for Ottawa when boomers reach retirement age, Mallard says. “We have a choice — they’ll either be into your tax pocket today or tomorrow, one way or the other.”

The Investment Dealers Association has also recommended raising RRSP limits to $27,000 over a five-year period. “Increases in the RRSP limit since 1976 have fallen far behind increases in the cost of living and the average wage in Canada,” the IDA said in its pre-budget submission.

One potential roadblock to increasing RRSP limits is the issue of contributions. Statistics Canada says in 2001, Canadians contributed $28.4 billion to RRSPs, just 9% of the total contribution room available.

Mallard calls that statistic “unfortunate” but adds there are other factors to consider. “If you look at your paycheque, in most instances, your largest expenditure is income tax,” he says. “So if people can’t save for retirement, maybe it’s because the cost of government is a little bit higher than it should be.”

Advocis, legally known as the Financial Advisors Association of Canada, was created earlier this year when the Canadian Association of Insurance and Financial Advisors and the Canadian Association of Financial Planners agreed to merge.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca.