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Better CPP Hurts RRSPs


If the federal and provincial governments decide to increase mandatory contributions to the Canada Pension Plan (CPP), Canadians may, in turn, reduce voluntary contributions to RRSPs, says a study from the Fraser Institute. ‘RRSPs and an Expanded Canada Pension Plan’examines readily available data from the Canada Revenue Agency on CPP and RRSP contributions between 1993 and 2008 to explore what happened to voluntary RRSP contributions when mandatory CPP contributions increased. Using three different measures, the study consistently found that RRSP contributions declined as mandatory savings to the CPP increased. For instance, the percentage of tax filers contributing to RRSPs in each age and income group decreased as the CPP contribution rate increased. While the results are broadly consistent across all age and income groups, the group most likely to be sensitive to changes in the CPP is Canadians aged 45 to 65 with incomes between $10,000 and $50,000. In 1993, 40.2 per cent of tax filers in this group contributed to RRSPs, with the proportion falling to 33 per cent by 2003 ‒ a decline of 17.9 per cent. Over the same period, the mandatory CPP contribution rate almost doubled to 9.9 per cent from five per cent.

Courtesy of Benefits and Pensions Monitor website News Alerts

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