IFIC, IDA welcome proposed increase to RRSP limits as first step

(December 11, 2002) A recommendation by the House of Commons finance committee to raise annual RRSP contribution limits by nearly 50% is long overdue and a step in the right direction, according to the heads of Canada’s mutual fund and brokerage industry associations.

Two weeks ago, the influential committee suggested raising limits to $19,000 from the current $13,500, noting that the limit hasn’t changed since 1996, when it was reduced from $14,500 in a cost-cutting measure.

Both the Investment Funds Institute of Canada and the Investment Dealers Association recommended doubling the limit to $27,000 in their pre-budget submissions.

“We wanted $27,000 but we’ll take what we can get,” IFIC president Tom Hockin told Advisor.ca. “As my mother used to say, the time to take tea is when they’re passing it.”

“We wanted to double it, but this is a move in the right direction for sure,” says IDA president Joe Oliver. “It’s long overdue.”

Hockin believes the campaign for even higher limits will continue. “We really do think it has to go beyond that. There are 600,000 Canadians at last count who are topped up and need more retirement savings in order to meet their expectations and we don’t want them leaving the country.”

Hockin says Canada is far behind other Western countries when it comes to tax-assisted retirement plans. For example, the annual limit on similar plans is about $50,000 in the U.S. and Britain, $90,000 in Ireland and there’s no limit at all in Denmark.

“It’s becoming a serious issue,” Oliver agrees. “Demographically, we have to do things to permit people to retire with dignity and also not to bankrupt a government that would otherwise have to support people.”

“It’s just ideology that’s preventing this so we really have to get moving,” Hockin says.

There’s no guarantee that federal Finance Minister John Manley will act on the recommendation when he brings down his next budget, likely early next year, but both Hockin and Oliver say they’re hopeful.

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“I’m more optimistic than I’ve ever been because the finance committee said RRSPs are not a rich man’s product,” Hockin says. “RRSPs are a middle-income Canadian product and that’s absolutely right because it’s the same people who buy mutual funds. That message might give the Liberals more courage and it might be a nice way for Manley to make a statement as minister of finance.”

“I think there’s a good chance he’ll act on this,” Oliver adds. “I’m hopeful.”

Last week, Advocis chair Brian Mallard told Advisor.ca he also welcomed the recommendation and was optimistic the finance minister would follow through.

Mallard added that because Ottawa has not moved on a prior commitment to gradually increase RRSP limits, “they’re just catching up to where they were supposed to be in 1998 or 1999.”

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Is this increase enough, or is the government just “catching up” as Mallard says? How will this increase be received by your clients? Share your views with your peers in the “Mutual Funds and Other Products” forum of the Talvest Town Hall on Advisor.ca.

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

(12/11/02)

Doug Watt