Fewer Canadians can contribute to their RRSP this year

Bank polls say many Canadians have other expenses preventing them from making retirement contributions


MONTREAL – Fewer Canadians are planning to put money into a Registered Retirement Saving Plan this year simply because they can’t afford it, say surveys by two big banks.

Both Scotiabank (TSX:BNS) and Bank of Montreal (TSX:BMO) say many Canadians have other expenses, such as car payments and paying down debt, that are preventing them from making a contribution.

Scotiabank found that 31 per cent planned to contribute to their RRSP, down from 39 per cent last year. BMO said 43 per cent of those surveyed planned to contribute, down from 50 per cent in 2013.

“The top answer was that they did not have enough money to make a contribution,” said BMO’s Chris Buttigieg, senior manager of wealth planning strategy.

Mike Henry, a Scotiabank senior vice-president, agreed, saying those surveyed by his bank said “they can’t afford it, they’ve got other expenses or other things they’re trying to manage.”

Overall, three-quarters of those who have RRSPs told Scotiabank they’ve thought about contributing more money to their plans, but they just don’t have the cash.

As the March 3 deadline approaches, those who are planning to make a contribution will have to think about where they will get the money.

Banks would like their customers to set up automatic withdrawal plans to make sure money is being put aside on a regular basis.

Buttigieg said an annual contribution of $2,000 to an RRSP would mean putting aside $167 a month or less than $6 a day, the price of two lattes at a coffee shop.

“We’re encouraging Canadians to make an RRSP contribution of any amount before the deadline,” he said.

Canadian’s have about $500 billion in unused RRSP contributions and that’s expected to increase to $1 trillion by 2018, Buttigieg said.

Many Canadians also don’t seem to be taking advantage of a Tax-Free Savings Account, either.

A new survey found that 53 per cent of Canadians still haven’t opened a TFSA and the main reason is not having enough money, according to ING Direct. The yearly limit for a contribution to a TFSA is $5,500.

“You have to find the money to contribute to an RRSP as well as money to contribute to TFSA, and you have to find the money to contribute to anything,” said Silvio Stroescu, head of investments and savings at ING Direct.

“Start small,” Stroescu advised, adding that savings add up down the road and that making contributions becomes easier over time.

Meanwhile, Royal Bank’s (TSX:RBC) annual RRSP poll found that more than half of Canadians said saving for retirement was their top priority, compared with 48 per cent who were focusing on paying off debt. That’s a reversal from last year when debt reduction outranked retirement savings.

However, credit monitoring agency TransUnion has predicted the average consumer’s total non-mortgage debt will hit an all-time high of $28,853 by the end of 2014.

RBC also found that one quarter of middle-aged Canadians (35 to 54) say they will need to save an average of $545,000 for a comfortable retirement.

Tax preparation firm H&R Block reminds Canadians that if they turn 71 in 2014 they must convert their RRSPs into a form of retirement income before the end of this year or be taxed on the fair market value of the plan.

Scotiabank’s online study was done by Harris/Decima with a sample of 1,029 Canadians from Nov. 12 to Nov. 27. The online BMO study was conducted by marketing firm Pollara with a sample of 1,003 Canadians between Nov. 18 and 22.

The polling industry’s professional body, the Marketing Research and Intelligence Association, says online surveys cannot be assigned a margin of error because they do not randomly sample the population.

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Fewer Canadians can contribute to their RRSP this year

  1. Well, now that the number has been compared to the internationally recognized measure of Gen Y salary rates (lattes/day), everything is in it’s proper perspective. Time to start saving!

  2. There is absolutely “no suprise” here !

    • Agreed. Ditch the RRSP and use TFSA is far better for 99% of the population.

      Only way RRSP makes sense now is if you know for sure you are going to have a few years of very high top tax rate years followed by some years of very low realized income where you can draw out at a lower rate to effectively income average down your total taxes. Very few will see this, and those that do will be in their 50s and 60s on the way to early retirement, or going to have 2+ years volunteering somewhere for no wages after leaving a 6+ digit income level.

      I can show how in real life, RRSPs slowly become tax traps especially if they go over $80,000 in today value. Me, I am hopelessly tax trapped. I will end up paying more percentage taxes out of my RRSP than I deferred in. Assured as tax tables never keep up with real inflation and taxes never go down, for a net tax increase. RRSPs also don’t have relief from inflation gains taxes.

  3. If people take a look at what happens to their after tax income from RRSP’s they will not be contributing to this deeply flawed program. TFSA programs are somewhat better although somewhat limited for some by the maximum contribution rules. Find a good advisor, not at the bank as they are very limited in what they can do and therefore what they are trained to do.

    • Well said. Retired couple might get $33k in CCP/OAS, anotehr $24k in outside pensions, another $20k in cask investments, pushes their taxable income to a point where any RRSP withdrawal will have the top full 40%++ punitive rate.

      So all a RRSP does is lock you in, generate lots of taxes for govmint. Want a roof job, or Mexico villa in retirement, RRSPs trap you into a tax greed nightmare. TFSAs are far far better in 1001 ways.

      Its why I ceased RRSP contributions 8 years ago, and did TFSA ever since even though I retired early. RRSP grows faster than I need it an any money I withdraw sees 40% to taxes, thus I am tax trapped.

      On death, I am donating the RRSP to charity fro tax trap relief.

  4. I stopped contributing to my RRSP 5 years ago. TFSA is a far better choice for every Canadian.

    Why is simple, once a RRSP grows to say over $80,000 in todays value, it becomes a tax trap. And if you are young, tax table creep and tax greed assures taxes will never go down. Inflation too, TFSA doesn’t have taxes, not even on inflation like a RRSP does. Even in death, your estate will not see the TFSA taxed at 40% or more like a large RRSP.

    I even put in less to RRSP than was put in CPP on my behalf, but now my RRSP grows so fast I will be paying 44% tax rates…as CPP/OAS for a retired couple, pensions, additional income from cash accounts assures I get top tax rates.

    I call it the RRSP tax trap as RRSPs are 100% taxed with no give on inflation…

    Many are smart, TFSA is a better choice than RRSP, I just wish I had that option when I was young. Or like USA IRA (RRSP) to ROTH (TFSA) conversion option.

    Anyone recommending RRSP over TFSA is NOT your friend or mighty stupid.