By Alexandre Laurin & George Turpie 

Simple changes to tax rules can improve retirement security for Canadians, as well as make the retirement system more equitable among different classes of savers, and more efficient at managing longevity risks for capital decumulation. This E-Brief provides a discussion of needed retirement-related tax changes impacting members of capital accumulation plans, such as RRSPs and defined-contribution (DC) plans, divided into the accumulation and decumulation phases.

Among the key tax changes recommended for the accumulation phase: increasing retirement savings room; for example, by discarding the annual income-based tax limits and replacing them with a uniform inflation-indexed lifetime accumulation limit; letting sponsors of group RRSPs deduct administrative expenses and payroll taxes like sponsors of defined-contribution plans; and creating a Tax-Free Pension Account (TFPA) that would primarily cater to the requirements of low- to mid-income earners.

For the decumulation phase, the authors’ major recommendations include: adding annuities to the list of investment products that can be held within a Tax Free Savings Account (TFSA); increasing the age thresholds for individuals to start receiving their public pensions; extending the age limits for when individuals must stop contributing to, or begin withdrawing from, their registered plans; equitable eligibility for the pension income tax credit and pension income splitting; and changes to mandatory minimum withdrawals from registered savings.

Savers in capital accumulation plans need fairer tax rules and more options.

Source @SSRN