The Investment Funds Institute of Canada (IFIC) is recommending in a submission to the House Standing Committee on Finance ahead of the next federal budget that the federal government take various measures to enhance access to registered savings plans such as registered education savings plans (RESPs), group RRSPs and registered disability savings plans (RDSPs).
“Our proposals align with the government’s commitment to support middle class families so that they can save, invest and strengthen the economy,” says Paul Bourque, IFIC’s new president and CEO, in the submission.
In particular, IFIC recommends revising rules that could deter people from opening RESPs, such as replacing the annual Canada Education Savings Grant (CESG) maximum with a lifetime limit and eliminating a rule that limits grants for some older children. IFIC also suggests raising the RESP contribution limit and the CESG limit, in response to rising tuition rates.
“Canada’s future economic growth will depend on a well-educated workforce, but Canadians’ ability to save for their children’s education through RESPs is being dwarfed by escalating post-secondary education costs,” Bourque notes. “We propose increasing the lifetime CESG limits to $9,000 and removing the $500 annual limit on matching CESG grants.”
The government should fund a campaign to increase awareness of RESPs, CESGs, and Canada Learning Bonds, IFIC recommends.
On the retirement savings front, IFIC echoes the Investment Industry Association of Canada’s (IIAC) submission in calling on the government to alter the rules surrounding group RRSPs to put them on a more level playing field with workplace pensions.
IFIC’s submission recommends that employer contributions should be exempt from payroll taxes and also that the fund industry would support requiring employer contributions to be locked-in, which, it suggests, would encourage employers to adopt group RRSPs.
IFIC also suggests that the rules should be changed to allow auto-enrollment in group RRSPs, citing the evidence from behavioural economics indicating that this feature dramatically increases employee participation in retirement savings plans.
As for RDSPs, the government should propose a series of changes to increase the use of these programs by reducing their complexity, IFIC’s submission recommends: “It is easily the most complex of the existing registered programs to explain to clients and to administer.”
Thus, IFIC is calling on the government to work with the provinces and the industry to identify and dismantle some of these barriers.
“By eliminating these barriers, the government will be contributing to better standards of living for Canadians with disabilities and increase their ability to make meaningful contributions to Canada’s economy,” Bourque says.
Finally, IFIC is also asking the government to revise the GST treatment of mutual funds, which face higher rates than other similar products. It recommends that the government solve the issue by qualifying funds for a full GST rebate.
“The benefit would flow through to investors by reducing the tax component of the fund’s management expense ratio,” IFIC’s recommendation says, adding that this would ultimately enhance retirement savings.
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