In a surprise move, Ottawa says it will increase RRP/RRSP limits starting next year. The last time Ottawa bumped the limits was in 2003 and further increases were not expected.

The annual dollar limit on contributions to RRSPs will jump to $18,000 in 2006 from the present $16,500. It will be increased by $1,000 per year until 2010, when it will reach $22,000.

The annual dollar limit on contributions to defined-contribution RPPs will be increased to $22,000 by 2009 from $18,000 in 2005. Corresponding increases will be made to the maximum pension limit for defined-benefit RPPs, bringing it to $2,444 per year of service by 2009.

The RPP and RRSP limits will be indexed to average wage growth starting in 2010 and 2011, respectively.

Ottawa says that increasing these limits on tax-deferred retirement savings plans is the preferred method of helping meet their retirement needs. In Wednesday’s budget, Ottawa decided to ignore promises in the last two budgets to examine the possibility of introducing tax-prepaid savings plans.

TPSPs are designed to encourage investing among taxpayers who would not get much benefit from the tax deduction that comes with contributing to and RRSP. With TPSPs contributions don’t result in deductions, but unlike RRSPs, withdrawals would not be taxed.

A finance department spokesman says the government has not abandoned the idea of TPSPs. But, he says, finance is concerned about the administrative difficulties involved with establishing two separate tax-deferred investment vehicles in the marketplace.

The proposed RPP/RRSP limit increases are expected to reduce federal revenues by $70 million for 2005–06, rising to $180 million by 2009–10.