The federal government’s new Tax-Free Savings Accounts could help reduce barriers to saving faced by lower-income Canadians, says a new report by the C.D. Howe Institute.

Government programs often discourage — and in some cases prohibit — personal saving by lower-income citizens, argue report authors John Stapleton and Richard Shillington.

They point to examples such as seniors losing out on guaranteed income supplement benefits due to RRSP withdrawals and single parents who are denied welfare benefits for putting money aside.

“Welfare-based programs often place severe restrictions on the acquisition of assets and income by recipients,” the report says.

The authors laud the TFSA as a mechanism that could allow Canadians with low income at retirement to save “in a more fruitful way,” as the savings won’t incur further income tax liability on earnings or withdrawals and withdrawals will not be subject to the GIS clawback.

“The TFSA is an instrument that has the potential to provide low-income Canadians with real choices in planning for their future,” the report says.

The authors urge the provinces and territories to further reduce barriers to saving with respect to TFSAs, by exempting the accounts from needs-tested programs. They recommend that the provinces establish an upper limit on an amount of TSFA savings that would be exempt from these programs. As well, provinces should define circumstances under which withdrawals from the accounts would not affect eligibility in needs-tested programs, the report says.

It also calls for governments to build on the TFSA platform and take further measures to encourage saving. In particular, the report recommends a government program that supplements the savings of poor Canadians, along the lines of the model set by the Registered Education Savings Plan.

“Encouraging asset accumulation, even if in small amounts, is crucial in helping to lift people out of poverty,” the report says. “Provincial and territorial governments need to act swiftly.”