RRSP contributions could suffer bear market hit: Poll

(January 6, 2003) The average RRSP contribution could be as much as 20% lower this tax year compared to the last, according to a survey released today by TD Wealth Management. That’s in sharp contrast to other recent polls — including an online survey conducted for Advisor.ca — which suggest contributions will remain steady this year, despite the rough ride on the stock markets.

Respondents to the TD poll said they would contribute an average of $3,900 to their RRSP for the 2002 tax year, down from last year’s average of $4,850.

“That was somewhat disturbing,” says TD Wealth Management vice-president Patricia Lovett-Reid. “What didn’t surprise me was the more conservative approach to investments, shying away from equities.”

When asked what types of investments would be included in this year’s RRSP contribution, 26% pointed to equity-based mutual funds, compared to 48% last year. Sixteen per cent said they would include individual stocks, down from 31% in 2002. GICs were the most popular investment choice.

“Fixed income does not guarantee a fixed purchasing power and that’s a message advisors really have to get across to investors,” Lovett-Reid told Advisor.ca. “You should not be basing your long-term goals on short-term market performance and that’s what people seem to be doing.”

Lovett-Reid says she was also surprised by the apparent disconnect in Canadians’ attitudes toward retirement planning. More than one-third said they expected to fully retire before age 65, but the average amount investors said they needed to save for retirement was dramatically lower, down to $547,000 from $652,000 last year.

“What Canadians are doing might not support what they’re saying,” she says. “No one expects to work beyond age 65 and yet the amount of money they say they’re going to need to save has dropped by $105,000.”

Advisors need to back up a bit and help clients get back to basics, Lovett-Reid says, noting that only 44% of Canadians have even tried to calculate how much they need to retire. “That’s a good place to start,” she says.

The number of RRSP holders using the services of a financial advisor was little changed compared to last year. Thirty-eight per cent of respondents said they use a professional to manage their money, compared to 40% in 2002. However, slightly more people (37% compared to 33% last year) said they were managing their money with the assistance of an advisor. The do-it-yourself trend appears to be on the decline with only 22% of respondents saying they were completely self-reliant, compared to 26% the year previously.

Toronto-based research firm NFO CFgroup questioned nearly 800 RRSP investors last November. The results are considered accurate within three percentage points.

The Advisor.ca online survey, posted on the MoneySense.ca Web site in December, suggested that 75% of respondents would contribute the same or more to their RRSP. Other RRSP surveys conducted by Decima Research and Market Facts of Canada had similar results.

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