With many Canadians lacking access to public pension plans and workplace retirement programs, the Securities and Investment Management Association (SIMA) is calling for policy reforms aimed at making it easier for people to grow their private retirement savings through registered savings vehicles such as RRSPs and TFSAs as well as non-registered financial assets.
In a report published Wednesday, the industry association proposes a retirement savings action plan with three focus areas to boost private retirement savings. This includes updating retirement rules to reflect increased longevity and eliminating “unfair” cost burdens.
Specifically, it advocates for raising the age at which Canadians must convert their RRSPs into a RRIF; allowing people with less than $200,000 in their RRIFs to opt out of mandatory withdrawals; eliminating sales tax on investment fund management fees; and enabling plan sponsors to implement automatic enrolment in workplace retirement programs.
In a statement, the Department of Finance Canada said it’s not its practice “to comment on stakeholder proposals, and it would be inappropriate to speculate on any potential changes the government of Canada might pursue.”
The proposed reforms are meant to allow Canadians to “unlock the full potential of private savings,” which have “gone under the radar” while attention nationally and internationally has largely been placed on public pension and defined contribution (DC) plans, said Ian Bragg, vice-president of research and statistics with SIMA.
Bragg pointed out that private savings made up roughly 46% of total Canadian seniors’ retirement savings in 2023 — nearly as much as the Canada Pension Plan, Quebec Pension Plan, Old Age Security benefits and workplace retirement plans combined. Data from Statistics Canada shows that private savings accounted for $4.5 trillion of Canadians’ financial wealth in 2023.
“Especially in the context of this affordability crisis, [it’s] important to address any opportunities and tweak policies to support private savings, to ensure that people can benefit as much as possible from private savings,” Bragg said in an interview.
Updating RRIF rules
SIMA (formerly the Investment Funds Institute of Canada) represents roughly 150 investment fund managers, dealers and professional and business services that support the investment funds industry. It has been calling for changes to RRIF rules since April.
At that time, it urged all federal parties in the lead-up to the federal election to consider raising the age at which Canadians must convert their RRSP into a RRIF from 71 to 73, and eliminating mandatory withdrawals for those with $200,000 or less in their RRIFs, which it noted is roughly 75% of all RRIF account holders.
Mark Carney said that if elected, his Liberal government would reduce the minimum RRIF withdrawal amount by 25% and increase the Guaranteed Income Supplement (GIS) by 5% for one year.
Bragg said those measures don’t go far enough.
“What we’ve proposed is going to be a lot more efficient administratively, more impactful, and still, really, economically in the big picture, not detrimental to government finances in the long term,” he said. Taxes are just deferred, not unpaid, he added.
“Depending on your economic assumptions, they might actually be larger in the long run,” Bragg said, because savings would be accumulated tax-free for a longer period of time.
Bragg noted that the federal government offered temporary RRIF relief in 2008, during the global financial crisis, and in 2020, at the start of the Covid pandemic. SIMA is calling for the permanent elimination of mandatory RRIF withdrawals to match current demographic and economic realities.
This would also help retirees avoid selling investments during market downturns to meet minimum withdrawal rules, he said.
“Broadly, it is about giving seniors more flexibility,” Bragg said, noting that seniors in Canada today are living longer, working later and face steep living costs.
Eliminating ‘regressive’ taxes
Another key recommendation is to eliminate GST/HST on investment fund management fees.
Canadians who invest in mutual funds or ETFs currently pay sales tax on the funds’ management fees, but GST/HST doesn’t apply to individual stock or bond holdings, which are more common among high-net-worth investors, the report highlighted.
Investors paid roughly $2.9 billion in GST/HST on investment fund holdings in 2023 alone, Bragg noted.
“When you consider that mutual funds and ETFs are really the investment choice of middle-income Canadians, it really does seem like a regressive tax,” he said.
“It’s about making the tax system more fair, but also … facilitating Canadians to have greater investment returns.”
Expanding access to financial advice
SIMA is also calling for expanded access to financial advice in Canada.
It specifically suggests that policymakers should support personalized hybrid (human and digital) advice models; modernize guidance to clarify what forms of guidance and advice are allowed, including for self-directed investors; and encourage the development of scalable advice platforms for middle-income savers.
As the report noted, many studies have shown that individuals who receive financial advice “accumulate significantly more wealth over time.”
Investors with private savings “are distinct in that they often benefit from access to financial advice,” it added.
“This is in contrast to public pensions and employer-sponsored plans, where personalized financial advice is not always provided or readily available. As such, private savings can offer a unique advantage when paired with tailored advice that supports informed, long-term financial decision-making,” the report said.
Boosting savings
Further, the report recommends enabling automatic enrolment in workplace group RRSPs and DC plans, and integrating private savings into the national financial literacy agenda.
Auto-enrolment would allow more Canadians to take advantage of workplace retirement programs that are provided, Bragg said.
“Auto-enrolment, certainly with the opportunity to opt out if it’s not meeting their objectives or financial needs because of debt or whatever else, that would enhance people’s retirement security and make sure there’s no money left on the table,” he said.
In terms of financial literacy, the report noted that RRSPs, TFSAs and other private savings tools are “often underrepresented in financial education programs,” and therefore, Canadians would benefit from more information about these tools in school curricula and adult learning programs, as well as from tailored content for low-income households, newcomers, gig workers and youth.
Asked about Canadians who are unable to set money aside in private retirement savings, Bragg said SIMA acknowledges that the proposed reforms would not solve all economic barriers to private savings but they would boost savings for some.
“We certainly recognize that affordability is a barrier for individuals to save and invest. And the policy proposals we’ve put forward aren’t going to address all the economic issues around stagnant wage growth, or persistent inflation, the cost of food, the issue with housing affordability,” he said.
“But we do think they would significantly help a large percentage of Canadians … save more.”