No worries.
They assist Canadians to supplement the retirement benefits provided by public pensions—OAS-GIS and CPP-QPP—as Nancy just described, so they may achieve their retirement income goals. RRSPs are voluntary, individual, and essentially a defined contribution savings plans. Savings through RRSPs and pensions are tax deferred. That means the contributions are deductible from income for tax purposes; investment income isn't taxed, as it's earned in the plans; and pension payments and RRSP withdrawals are taxed, but they're included in income and they're taxed at regular rates.
The contribution and benefit limits for pension plans and RRSPs are designed to permit most individuals to save enough over a 35-year career to obtain a pension equal to 70% of pre-retirement earnings, an amount generally considered sufficient to allow individuals to maintain their living standards in retirement.
Annual contributions of 18% of earnings are permitted to be made to an RRSP up to a specified dollar limit. In 2016, that limit is $25,370. The pension and RRSP limits are integrated in order to provide comparable retirement savings opportunities whether an individual saves in a pension plan, an RRSP, or both. Unused RRSP room may be carried forward to future years.
If you look at annual contributions through RRSP, there's just about $40 billion, and there was about $1.1 trillion in RRSP assets at the end of 2014.
Participation in pension plans and RRSPs tends to increase with earnings, but that's because private savings needs increase as earnings increase.
Nancy told us about OAS-GIS and CPP-QPP. They replace a significant portion of pre-retirement earnings for those with low and modest incomes, meaning that their private savings needs can be small. Often, they can be zero. Middle- and higher-income Canadians, on the other hand, need to save privately to achieve adequate earnings replacement rates in retirement because public pensions replace a smaller portion of pre-retirement earnings, so it's understandable that participation rates in RRSPs and pensions plans are higher for middle- and high-income individuals.
Now we also have the tax-free savings account, which provides tax-assisted savings opportunities. The TFSA is a general purpose savings plan. It can be used for any purpose, including retirement savings, but for lots of other purposes, too. TFSAs first became available in 2009 and they allowed Canadian residents aged 18 and over to earn tax-free investment income throughout their lifetime. Contributions to a TFSA aren't tax deductible, but investment income earned under a TFSA and withdrawals from a TFSA are both tax free.
The TFSA annual contribution limit was $10,000 for 2015. The government has proposed returning the annual limit to $5,500 for 2016, indexed to inflation in $500 increments.
Unused TFSA contribution room is carried forward and accumulates in future years. The full amount of withdrawals from a TFSA can be re-contributed to the TFSA the following tax year.
The TFSA can provide greater savings incentives for low- and modest-income individuals than an RRSP, because, in addition to tax savings, neither the income earned in the TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as guaranteed income supplement benefits and the Canada child benefit.
TFSAs have quickly become an important savings tool for Canadians. Nearly 12 million individuals held TFSAs at the end of 2014, with a total fair market value of over $150 billion. Almost half of TFSA holders in 2014 had total income under $40,000.
Those are my remarks. After we're all done, I'd be pleased to answer any questions.