RRSPs are terribly tax inefficient. For the $8.5 to $12.1 billion in annual net tax expenditures (around 30% of total contributions), the median value of RRSP assets by Canadians under age 65 is a woeful $40,000 and those over 65 have less than $55,000 — not enough to rely on to supplement one’s pension, especially at today’s annuity rates. Only 25% of working Canadians contribute to RRSPs, only six percent with incomes under $20,000. Prorating tax expenditures to the value of projected pension would bring fairness and equity back into the system.
Phasing in the doubling of the target income replacement rate to 50% and the doubling the Year’s Maximum Pensionable Earnings (YMPE, which is equivalent to the average industrial wage) over the next 47 years is the most efficient way to ensure that future retirees will be able to retire with dignity without intergenerational subsidies.