Ottawa has an opportunity in the 2010 federal budget to improve retirement saving prospects for many Canadians, says William Robson, president and CEO of the C.D. Howe Institute.

In a paper released Thursday, Robson outlines straightforward, no-regrets ways Ottawa can facilitate more saving and make cost-effective risk-pooling available to the majority of Canadians in defined-contribution (DC) plans and RRSPs.

Robson argues that “pension reform in Canada is both over preoccupied with the defects of existing arrangements and at risk of bogging down with the complexity of root-and-branch reforms.” Near-term changes to the Income Tax Act, he argues, could break the log-jam.

The report recommends the following changes:

• provide more tax deferral room for DC/RRSP savers by raising the contribution limit from 18 percent to 34
percent of earned income, and raising the maximum dollar amount proportionally, from $22,000 to $42,000;

• raise the age at which people lose access to tax-deferred saving and must start decumulating to 73 from 71;

• make the pension credit available to people receiving income from a RRIF or Life Income Fund (LIF) regardless of age, as it is to recipients of annuities from pension plans;

• give RRIF/LIF holders the same spousal income-splitting opportunities as recipients of annuities from pension plans; and

• alleviate the tax disadvantages of group RRSPs by letting sponsors and/or participants deduct some administrative expenses currently levied against plan assets from outside income, and by removing payroll levies from employer contributions.

Further changes to the Income Tax Act would make retirement-related services more readily available to employees of small organizations and to the self-employed, and allow LIF-style payments from inside DC plans.

Such changes would foster a more robust third-pillar retirement saving system, concludes Robson.

IE