Higher RRSP limits on IFIC’s budget wish list

(September 22, 2003) Canada’s mutual fund industry association is once again urging the federal government to boost RRSP contribution limits. In a pre-budget submission released today, IFIC recommends an immediate increase to $27,000 a year, with future increases tied to inflation.

Earlier this year, federal Finance Minister John Manley committed to gradually increasing RRSP levels from the current limit of $13,500 starting with a rise to $14,500 for the 2003 tax year. By 2006, the limit would be at $18,000 with future increases indexed to average wage growth.

That’s a step in the right direction, but still insufficient, says John Mountain, IFIC’s vice-president of regulation.

“This does not begin to put people who are relying on RRSPs for their retirement savings anywhere near the position they would have been in had the limits not been rolled back in the early 1990s and had they been indexed to inflation,” Mountain said earlier this month at IFIC’s annual conference in Toronto.

In this year’s budget, Manley also pledged to study the issue of tax prepaid savings plans (TPSPs), viewed by many as an alternative to RRSPs, suitable for lower income Canadians.

IFIC says Manley should move forward to establish TPSPs. “These plans are the only practical way in which lower income Canadians can save for their retirements,” IFIC notes.

Last week, Advocis and the Conference for Advanced Life Underwriting (CALU) also called for RRSP limits to be raised to $27,000, noting that Canada “continues to significantly lag” behind other countries in this area, including Britain and the United States.

Those two associations also recommended that the age at which an RRSP must be converted to a RRIF be raised to 71 from 69 and that consideration be given to raising the age to 73.

“Our members have told us that, given the current low interest rate environment, it takes longer for their clients to accumulate capital,” said Advocis president Steve Howard. “Allowing an additional two to four years may make the difference between a financially secure retirement or the need to rely on government programs for some lower income seniors.”

IDA president Joe Oliver will present his pre-budget submission on Tuesday in Ottawa and is also expected to push for higher RRSP limits.

There’s some doubt over the timing of the next federal budget. Ottawa usually presents budgets in the spring. However, with current Prime Minister Jean Chrétien set to retire in February, the budget process could be delayed.

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