An open letter to Stephen Harper

I find it somewhat ironic that the new Conservative government is being sworn in right in the middle of RRSP season, at a time when the number one financial priority of millions of Canadians is putting money aside for their retirement. The irony lies in the fact that retirement planning seems to be a nowhere issue for the Conservatives. Not only is it absent from their priority list, but the subject is barely touched on in the party platform, apart from a motherhood pledge to protect the Canada Pension Plan and Old Age Security.

Perhaps because Mr. Harper is many years away from retirement (he is 46) he does not see this as a pressing matter. If so, he would be typical of many baby boomers who have been too busy climbing the career ladder to worry about getting old. But the reality is that, despite the apparent health of the CPP, our retirement security system in Canada is under increasing pressure. Unless the problems of today are fixed, we may be looking at a social crisis in the not-too-distant future.

With that in mind, I have written an open letter to our new Prime Minister, as follows:

Dear Mr. Harper,
I realize that many challenges lie ahead for you a your government as you assume office. However, one matter that needs to be addressed sooner rather than later is the issue of retirement planning. Millions of Canadians will be reaching retirement age over the next two decades. Unless meaningful action is taken now, many of them may face serious financial hardship, resulting in tremendous pressure on our social services. Specifically, I urge you and your colleagues to consider the following.

Pension reform. Every organization involved in the administration and regulation of employer pension plans in Canada sends the same message. The majority of the plans are underfunded and the situation is not improving despite three consecutive years of double-digit stock market gains. This cannot be allowed to continue. Last year, the Department of Finance issued a discussion paper in which it asked for input from the public and interested parties on ways to deal with the problem. Unfortunately, it got lost in the income trusts furore. I suggest that one of the early acts of your new Finance Minister should be to raise the profile of this issue and convene a national forum to encourage dialogue and put forward lasting solutions.

RRSP reform. In his 2005 budget, outgoing Liberal Finance Minister Ralph Goodale announced that maximum RRSP contributions would be increased annually from 2006 to 2010. He shrugged off criticism that the only people that would benefit from his plan would be the wealthy. With private pension plans under pressure, people need to be given more encouragement to save for their own retirement, a philosophy which would appear to be consistent with the self-reliance views of your party. A good starting point would be to restore to 20 per cent (from the current 18 per cent) the percentage of earned income that can be contributed each year, thus allowing more room for middle-income people.

Stop penalizing savers. It’s hard to believe that this country penalizes low-income people who put some money away in RRSPs for their old age. But that’s exactly what happens to those eligible for the Guaranteed Income Supplement. For every dollar they receive from an RRSP or RRIF they lose 50c worth of benefits. This makes no sense and is a major disincentive to save. Your new Finance Minister should look closely at changing the rules so as to exempt income from registered plans from this clawback.

Let people use their own money. The federal government is one of the few jurisdictions in Canada that does not allow people with locked-in retirement accounts (LIRAs) to get access to their money in cases of severe financial hardship. I personally know of cases where Canadians have been threatened with the loss of a home despite the fact they had tens of thousands of dollars in locked-in money because of this paternalistic attitude. Look at your home province of Alberta for a model of a practical policy for dealing with such cases.

Reduce RRIF withdrawal rates. When the Liberals overhauled the RRIF system in the early 1990s, they increased the minimum percentage that must be withdrawn from plans. For example, a 71-year-old now must take out 7.38 per cent of the plan’s value, whether the money is needed or not. The move was widely seen at the time as a tax grab from seniors. More serious is the fact the change was introduced just as interest rates went into a prolonged decline. As a result, many seniors are not able to generate enough cash flow within their RRIF to meet the minimum withdrawal requirement, thus forcing them to dip into capital. With life expectancy increasing, the risk of seniors outliving their retirement savings is growing. To avoid having this become a major problem, your government should consider reducing the minimum withdrawal requirements for RRIFs and LIFs to levels that are more consistent with prevailing interest rates.

These are not the only retirement issues that need to be addressed, but I regard them as among the most urgent. I hope my comments will be accepted in same constructive spirit in which they were written.
Gordon Pape

This article originally appeared in the Internet Wealth Builder, a weekly e-mail newsletter that provides timely financial advice from some of Canada’s top money experts. For more information about becoming an Internet Wealth Builder member, go to