In my last column I talked about the need to provide more flexibility for seniors by updating Canada’s registered retirement income fund (RRIF) policies. I’m pleased to say that our organization, the Securities and Investment Management Association (SIMA), has taken a big step forward with this initiative by launching a comprehensive retirement-savings action plan.
I am confident that, with enough political will, this strategic approach would significantly modernize Canada’s outdated system and help protect Canadians’ financial futures.
The time is now
Canada’s retirement-income system developed decades ago on foundational pillars:
- government-funded programs, such Old Age Security and the Guaranteed Income Supplement;
- public retirement plans such as Canada Pension Plan and Quebec Pension Plan;
- workplace pensions, including defined benefit and defined contribution plans and private registered savings, such as RRSPs and TFSAs; and
- non-registered personal savings and other investments.
Over time, the balance among these sources has shifted to the point where today private savings contribute almost half of retirement income for Canadians aged 65 and older.
All this is taking place during an affordability crisis when saving has never been more difficult. Over the last several years, rampant inflation, rising housing costs and stagnant wages combined with heavy household debt have left many Canadians with little room to put money aside for retirement — or anything else beyond day-to-day expenses.
For those who are already retired, inflation-driven expenses can erode a substantial portion of their retirement income, sometimes forcing them to make difficult choices as they see their nest egg shrinking.
Meanwhile, public policy hasn’t kept up with the changing environment. It still reflects assumptions from decades ago about when people retire, how long they live and whether they have a traditional workplace pension plan. That disconnect creates real risks for Canadians.
Since private savings are going to continue to carry more of the weight in retirement, it is imperative that public policy is modernized to reflect current realities. Without action, the gap between what Canadians need for retirement and what they can realistically save will only widen.
A three-part action plan
SIMA’s plan is outlined in a new paper entitled Canada’s Retirement Puzzle: Why Private Savings Must be at the Centre of Reform. Broadly speaking, our recommendations to government fall into three categories that will make it easier for Canadians to save:
- Modernize retirement rules to reflect longer lifespans by raising the RRSP-to-RRIF conversion age from 71 to 73, and by introducing flexible RRIF withdrawals for modest balances (under $200,000).
- Level the playing field for all savers by eliminating the tax on investment fund management fees, harmonizing and reducing regulatory costs and ensuring broader access to financial advice.
- Make saving the default by enabling auto-enrollment in workplace savings plans, such as group RRSPs, and integrating private savings into the national financial literacy agenda.
While Canada’s existing retirement-income system has many strengths, it’s no secret that it’s in need of an update and our research contributes to the growing body of evidence that supports that position. By modernizing policy and making it easier for Canadians to save, the government could better achieve its goal of helping people to have financial security in their retirement years, thus reducing dependency on government social services and programs.
After a lifetime of working, retirees need to know they have a reliable source of income to enjoy during retirement. That’s good economic policy and essential public policy.
Andy Mitchell is president and CEO of the Securities and Investment Management Association.