Commons finance committee calls for higher RRSP/RPP limits

(November 29, 2002) The influential Commons finance committee says the federal government should raise annual RRSP and RPP contribution limits to $19,000.

The House of Commons Standing Committee on Finance has held a series of pre-budget consultations and released its report to Finance Minister John Manley today. This is the committee’s contribution to the budget-making process.

The current RRSP contribution limit is $13,500 or 18% of an individual’s income, whichever is less. The committee said this limit has not changed since 1996, when it was lowered from $14,500 as part of the federal government’s effort to eliminate the deficit.

“The Committee believes that Canadians should be given appropriate incentives to save for their retirement,” said the report. In 2001, Canadians saved, on average, 4.6% of their disposable income, down from 9.2% in 1995.

Committee members want the Chretien government to pick up the pace in raising RRSP/RPP contribution limits. In 2000, the feds committed to gradually raising RPP limits to $15,500 in 2004 and RRSP limits to the same level in 2005. The MPs want the government to go further.

Here is the wording of the committee’s recommendation:

“The federal government, in the next budget, raise Registered Retirement Savings Plan and Registered Pension Plan contribution limits to $19,000 in order to allow those in the top income tax bracket to shelter 18% of earnings. Moreover, contribution limits should be raised in accordance with the inflation rate beginning immediately.”

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Many industry groups had advocated an increase in RRSP contribution limits, including the Canadian Association of Insurance and Financial Advisors, Canadian Association of Financial Planners, the Investment Dealers Association, the Investment Funds Institute of Canada and the Canadian Life and Health Insurance Association. Some groups want the limits scrapped altogether.

Statistics Canada said taxfilers used up only about 9% of the total RRSP contribution room available in 2001. Canadians contributed just over $28.4 billion to their RRSPs last year, down 3.0% from 2000, when Canadians socked away $29.3 billion.

The Commons finance committee also recommended the federal government increase the Canada Education Savings Grant contribution for low- and middle-income families to 30% of the first $1,000 contributed annually to a Registered Education Savings Plan.

Also, the MPs said the Income Tax Act should be amended to permit the provinces and territories to set up contribution programs similar to the Canada Education Savings Grant. The recommendation included a suggestion that RESPs be given protection under bankruptcy laws.

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Is this recommended increase in RRSP/RPP limits sufficient in your view? Let us know by sending a message to the “Free For All” forum of the Talvest Town Hall on Advisor.ca.

Filed by Jim MacDonald, Advisor.ca, jmacdonald@advisor.ca.

(11/29/02)