Thank you, Mr. Chairman.
On behalf of BMO Financial Group, I am pleased to present some views on retirement income security of Canadians.
Throughout my career, I've been involved in financial planning and dealing with the many issues that the committee is facing right now. As financial planners, we hear from our customers all the time. We have first-hand knowledge of what's on their minds. I would be pleased to share that with you this afternoon.
In addition, as director of BMO retirement strategies, I'm head of the BMO Retirement Institute, which we established two years ago. The retirement institute is an independent research group that prepares reports and provides insight and financial strategies for individuals who are planning for, or are currently in, their retirement years. Our work is supported by the BMO Advisory Council on Retirement, which is chaired by someone well known to you, former clerk of the Privy Council Mel Cappe. The panel is made up of a cross-section of talented individuals across the country, including one of your colleagues from the red chamber, Senator Pamela Wallin.
We see all of this--the institute, the reports we publish, participation in events like these--as part of our efforts to help Canadians make better financial decisions. As a bank we are trying to do our bit to improve financial literacy among Canadians, and that is the thinking behind our customer commitment to making money make sense.
At BMO Financial Group it is our firm belief that Canadians need to take charge of their retirement. We see this as a very deliberate exercise that involves three basic steps: creating what we call your retirement picture, then building a financial frame for that picture, and finally putting in the financial strategies to help you achieve your retirement goals by starting that process as early as possible. This approach helps to identify savings gaps and trade-offs, as my colleague Ian Lee was talking about, between paying down a mortgage or saving for retirement that is necessary, but it also includes options that we're now seeing, such as working longer, spending less, or deliberately changing lifestyle in retirement.
In our view, Canadians are not doing all they can to save for retirement. We've conducted quite a number of surveys through the retirement institute, and I'd like to share some of the results with you.
For example, in January a survey we did showed that only 34% of Canadians had a financial plan. This was a significant improvement from 2008, when 27% of Canadians had a financial plan, but we think there is still a significant gap. That is part of the reason we're here today discussing pension reform and whether there is a problem or not.
We did another survey at the end of February, right after RSP season, and only 38% of Canadians reported making an RSP contribution before the deadline. When we asked the respondents why that was the case, not surprisingly, two-thirds of the respondents cited lack of funds as the reason for not being able to make an RSP contribution. In fact, they identified it as an important thing to do; they just had a lack of funds.
Another interesting finding from our research is that Canadians today, unlike our parents' generation, seem relatively unconcerned about taking debt into retirement. This is not a good idea. We urge all our customers, as well as Canadians, to do their utmost to enter retirement debt-free.
The research results are a little troubling. I think they particularly signal a cause for concern for members of the boomer generation who are on the verge of retirement. People retiring now are living longer--well beyond age 65--but they're saving less, and the trend away from defined benefit plans to defined contribution plans has certainly shifted the burden of managing retirement savings from institutions to individuals.
I will point also to the other matter that is of great concern to Canadians today, and that's financial fluency. I think the two issues go hand in hand. In fact, most people in this country have neither defined benefit plans nor defined contribution plans, although I should point out--and this may be of interest to our friends from the CFIB here today--that banks such as ours do offer individual pension plans as an alternative to provide a defined benefit plan for small business owners. In other words, there are some private sector alternatives to alleviate defined contribution or defined benefit gaps.
Many commentators of late have been focusing on the public pension side of the equation, but what I would like to address today are some brief changes to the existing RSP and RIF rules that would give Canadians more control over their retirement assets. I set these out in an article that appeared in Policy Options magazine last month, but I will summarize a few of those ideas today.
First we recommended the removal of the age restriction for contributing to an RSP. Canadians are living longer and working longer; it makes sense that they should be able to save by using their RSP for a few more years instead of having to stop making contributions at age 71. We can talk more about that later.
We also recommended reducing taxes paid on RRIF withdrawals. Currently, RRIF withdrawals are taxed as ordinary employment income, potentially attracting top rates of taxation and receiving none of the preferred tax treatments the underlying securities in those plans would have generated had they been invested outside of an RRSP. Instead, we recommend that only the deferred employment income contributions to the plan be taxed as employment income. The investment income would be taxed at a lower rate--something that would mimic what those funds would have been taxed at had they been earned outside of those plans.
We also recommend that the prescribed rate at which funds must be withdrawn from a RRIF be reduced. Currently, at age 71 the minimum RRIF withdrawal is 7.38%. We're recommending something lower than that to allow the RRIFs to last as long as Canadians will.
Next we think you should broaden the opportunities, when plan contributors die, to pass on their RRSPs and RRIFs tax-free to children who have RRSP and RRIF accounts as well. Why not allow tax-deferred rollover to the next generation to allow sons and daughters to benefit from their parents' RRSP savings? This could be an immediate benefit to people approaching retirement whose parents might still be alive. Those funds currently will pass to the second generation, but only on an after-tax basis. This could provide a boost to individuals who are short on savings for retirement.