IFIC urges that the RESP limits should be boosted

RESPAccording to the information, published on Advisor.ca , public hearings and pre-budget consultations are now being held in the House of Commons Standing Committee on Finance. One of the contributors who responded to the Committee’s call for submissions in July is IFIC. Earlier this year the recommendations by industry members caused the government eliminating foreign content restrictions on registered savings plans.

IFIC’s 2005 proposal makes some budget recommendations concerning retirement planning and registered savings. IFIC this year is recommending that Ottawa should introduce changes that would give more opportunities for Canadians at all income levels to save for retirement.

According to the proposal, larger limit increases in registered savings plans are needed, especially for self employed men and women, or for those who do not benefit from an employer sponsored pension plan. Alongside with this, higher contribution limits for RESPs beyond the current lifetime limit of $42,000 and annual limit of $4,000 are recommended.

The paper says that with the current lifetime contribution limit, a family with a child who will be entering post secondary education in 18 years will not have sufficient resources through an RESP to fund their child’s education, as current RESP limits are not indexed for inflation or the rising cost of education. That is why they urge the committee to recommend immediate increasing in both the lifetime and annual contribution limits for RESPs.

The paper also urges the committee to continue recommending to the Finance Minister that he establish Tax-Prepaid Savings Plans (TPSPs) that would allow people to make after tax contributions to a liquid savings plan that shelters investment returns.

The idea was created to attract the attention to lower income Canadians who are penalized for saving because they run the risk of failing the different means tests and triggering clawbacks in social assistance.

According to the idea of Derek Holt, assistant chief economist at RBC Financial Group, proponents say this new product, and variants like the Registered Development Savings Plan (RDSP) and other hybrids, would do one or both of two things: address inequities in the taxation of retirement savings and income that work to the detriment of lower income Canadians; and stimulate overall saving. He thinks that neither TPSPs nor RDSPs are likely to accomplish either of the two main objectives. “On both counts, creative arguments have been employed to grossly overstate a problem and then to fix it with a very blunt, indirect, administratively costly, and relatively complex instrument that, depending on its exact form, may be overly restrictive, viewed with deep suspicion by lower income people and, ironically, be very regressive,” he says.

IFIC says that these plans are the only practical way in which lower income Canadians can save for their retirements.

In the 2004 budget, the Finance Minister said his department is continuing to review ideas about whether the new product could be appropriate for Canada or not. IFIC is now trying to assure the government to enact Bill C-55, which received first reading in the House of Commons on June 3. It extends creditor protection to all registered savings and income plans.



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