WP talks with CEO Andy Mitchell and Ian Bragg, VP of research and statistics
Canada’s retirement system is at a crossroads and in urgent need of reform to modernize outdated rules and help Canadians secure their financial futures.
With nearly half of retirement income now coming from private savings, the Securities and Investment Management Association (SIMA) says public policy does not reflect today’s pension realities. And it has a plan to fix it, building on comments made earlier this year.
In an interview with Wealth Professional, president and CEO Andy Mitchell and VP of research and statistics Ian Bragg, share more about SIMA’s new report, Canada’s Retirement Puzzle: Why Private Savings Must be at the Centre of Reform.
Over the past two decades, the balance of Canada’s retirement system has shifted and while government programs like the Canada Pension Plan (CPP), Old Age Security (OAS), and the Guaranteed Income Supplement (GIS) remain foundational, traditional workplace pensions have declined in coverage.
Today, almost 46% of seniors’ income comes from private savings, up from 36% in 2005 and Bragg says private savings are now not only a personal lifeline but a national asset.
“Without private savings, GIS eligibility rates would certainly increase,” he says. “But we also observe in the report how income from private savings contributes to tax revenue directly ($26.6 billion in 2023), so that income also helps fund OAS and GIS programs.”
RRSP to RRIF
One of SIMA’s key proposals is raising the mandatory conversion age for Registered Retirement Savings Plans (RRSPs) into Registered Retirement Income Funds (RRIFs) from 71 to 73, to provide more years of tax-deferred growth.
“Say it was $350,000 in an RRSP with an estimated 5% annual return, that would be $35,000 in additional capital after two years,” explains Bragg. “Of course, some of that after tax could be invested outside of an RRSP, but that would be one example.”
Another recommendation would allow Canadians with RRIF balances under $200,000 to opt out of mandatory withdrawals.
“Seventy-five per cent of RRIF holders are under $200,000 account size,” Mitchell notes. “Giving flexibility back to the individual allows them to manage their own personal finance the way they wish… particularly in an era of volatility and down markets.”
Taxing fees
A second part of the reform plan targets costs and fairness. Currently, Canadians who invest in mutual funds or ETFs pay GST/HST on management fees, something not applied to stocks and bonds, which wealthier investors typically hold.
“We do feel the time is right to review GST and HST on mutual funds and ETFs,” Mitchell says. “Those are operating expenses for the funds. The fund company doesn’t make any money off that. It is a tax and a burden, which means that will reduce the cost of that same vehicle to the investor.”
The report notes the level of tax paid on these fees.
“Mutual fund and ETF investors paid $2.9 billion in GST, HST on fund management fees in 2003,” says Bragg. “And when you think of this as of funds being kind of middle income investor investment, it does seem counterproductive to be taxing this long-term savings vehicle.”
Auto-enrollment
Perhaps the most ambitious recommendation is to flip the psychology of savings. Rather than requiring workers to opt into workplace RRSPs, SIMA argues for auto-enrollment but realizes that it won’t be appropriate for everyone.
“We’re not saying this is mandatory,” Mitchell clarifies. “What we’re trying to say is make default savings the auto enrollment. You can always opt out rather than opt in. We know by evidence, not only in Canada but other workplace savings programs around the world, that auto enrollment does increase short-term and long-term savings.”
SIMA’s proposals also acknowledge that saving is hard right now, with Canadians paying more for groceries and other essentials and higher mortgage rates, while also suffering from stagnant wages and elevated levels of household debt.
“Closing the retirement savings gap depends on working households being able to contribute, and not everyone can,” Bragg says. “But for those who can save, these policy recommendations will broaden access, participation, and benefit.”
Education initiatives
Finally, SIMA emphasizes the importance of education, not only for those approaching retirement who may find any changes to the system unsettling, but also for high school students to understand the importance of retirement savings early in their work lives.
“As an association, we don’t have the resources to go out and talk to all investors,” Mitchell says. “But we have the membership that is the industry, and our job is to build infrastructure around them to make sure we are getting the message out.”
While the IFSE Institute was wound down earlier this year, SIMA has kept the leadership of that part of its organization for its new education arm.
Mitchell says that’s to “make sure that we're staying ahead of proficiency for advisors, but also general financial literacy as well out to the industry and how we can maybe work with schools and other curricula and curriculum across the country through government initiatives.”
SIMA wants to see financial literacy programs that better integrate private savings into school curricula, as well as exploring how fintech and even gamification can help younger Canadians grasp concepts like compound returns.
Mitchell says that work is continuing around ensuring that reliable information is available, through advisors but also other routes including social media and Finfluencers and the ability of OEO firms to provide more resources for self-directed investors.
“There's a lot of great FinTech providers out there that can help investors think differently and drive their kind of investing journey towards their goals, including retirement,” he says. “And we give CIRO credit and some of the FinTech companies credit for looking down the road on that as well from a roadmap perspective.”
Canada’s retirement system has been lauded internationally for its sustainability, but with affordability pressures mounting, SIMA says change is urgent.
