Public still needs RRSP, TFSA education: polls

As the March 1 deadline for RRSP contributions approaches, Canadians are anxious about their retirement plans. With good reason, it would seem, as a pair of surveys conducted by Leger Marketing show confusion and a lack of understanding when it comes to Canada’s top investment vehicles.

According to a survey commissioned by BMO, 80% of Canadians who have a registered retirement savings plan (RRSP) are not confident that it will provide enough income for their retirement.

Part of that uncertainty stems from the fact that 25% have no idea how much they will even need to retire comfortably. Without a clear goal, it is impossible to know if it is attainable. Fortunately, more than half (54%) have decided they will need at least $550,000 in savings to retire.

“There is no magic, one-size-fits-all number,” says Tina Di Vito, director, retirement strategies, BMO Financial Group. “The amount you will need will largely depend on your personal circumstances and the kind of retirement lifestyle you want. The key is first to determine what your retirement years will look like and then start budgeting for them.” Nearly half of survey respondents said they did not feel they are contributing enough to their RRSPs.

For the most part, Canadians understand that investing regularly is important, as 56% said they believe success investors contribute either annually (22%) or monthly (34%). As is often the case, however, there is a gap between understanding what must be done, and action taken, and only 37% say they make regular contributions.

“We also recommend that Canadians start contributing as early and consistently as possible and spend the time to develop a retirement plan that focuses not only on the goal but also on a specific schedule to help them stay on track with savings.”

Most troubling may be the finding that 33% of adult Canadians have no RRSP investments whatsoever.

“Fewer employers are providing pension programs and people cannot count on the Canada Pension Plan to meet all their financial needs in retirement,” says Di Vito. “It’s essential that Canadians start contributing to a plan on a regular basis at the earliest possible age.”

As for the TFSA… A separate Leger survey, this time commissioned by Mackenzie Investments, focused on Canadians’ understanding of tax-efficiency’s new kid on the block, the tax free savings account.

The results were less than stellar. The survey found that 68% of Canadians haven’t opened a TFSA yet. When asked why they thought more people hadn’t opened one, 59% said they though people just didn’t have enough money to invest, while 42% cited a lack of understanding.

“When the government gives you a tax break, you’ve got to take it. A number of Canadians have already taken advantage of the TFSA, but many still need to learn about this new vehicle for building wealth,” says George. “It’s encouraging to see Canadians turning their attention to the TFSA, but when it comes to learning the basics, there’s still some work to be done.”

On the upside, 39% of those who had a TFSA said they expected to adjust their investments in the wake of the recent market turmoil, as they thought market conditions had improved.

In a series of five true or false questions, the survey found Canadians scored highest when asked about the contribution limit, with 63% knowing that it is not income-dependent and that all adult Canadians could contribute $5,000 per year.

But only 43% of Canadians knew that contributions to their TFSA were not tax-deductible and just 41% knew that a TFSA could hold a wide range of investment products.

“Canadians have a great opportunity to grow their savings free of income tax through a variety of investments in a TFSA, not just lower interest savings accounts,” says Wilmot George, director of tax and estate planning for Mackenzie Investments. “Mutual funds can provide various levels of growth while managing risk through diversification. A financial advisor can help investors choose investments that are best suited to them.”

Only 36% knew that unused contribution space could be rolled over to subsequent years, while the remaining 64% thought unused room was forfeited.

The most misunderstood aspect of the TFSA is also the least troubling from a planning perspective. Only 22% of those surveyed knew that they could hold multiple TFSAs, which, from an advisor perspective, is probably just as well — there’s no benefit to the client holding more than one account.

Only 8% of respondents answered all five questions correctly, while 28% did not get any of the questions correct. Younger Canadians scored the worst, with only 3% of 18-24 year olds answering all five questions correctly.

“What you don’t know can mean a lost opportunity,” says George. “Working with a financial advisor can help Canadians score a perfect grade on this test and capitalize on every opportunity to benefit from tax-free gains and compounding.”

(02/17/10)