CIBC World Markets questions Canadian retirement readiness as unused RRSP contribution room balloons to $491 billion
TORONTO, Feb. 6 /CNW/ - CIBC (CM: TSX; NYSE) - Canadians are expected to contribute a record of nearly $33 billion towards their RRSPs this year but this number is miniscule compared to the $491 billion they still have in unused RRSP contribution room, according to a CIBC World Markets report released today, entitled Retirement: Ready or Not? "On average, each of the 20.7 million Canadians with unused RRSP contributions can contribute $23,700 to their RRSPs for the 2006 tax year, up from $15,000 in 1999," says Benjamin Tal, Senior Economist, CIBC World Markets. "Almost 90 per cent of Canadian tax filers currently have RRSP room." Despite the strong growth in overall RRSP contributions in 2005, fewer than 40 per cent of Canadians between the ages of 25 and 64 actually contributed during the year. The dollar value of contributions has hardly changed in the past few years, with a median contribution of $2,030 per household in 2005 - roughly the same amount seen in 2003 and 2004. This means that when accounting for inflation, the median amount of RRSP contributions made by Canadians is, in fact, falling. Low and falling median RRSP contributions translate into insufficient overall RRSP savings. As a share of income, RRSP contributions have fallen below 6 per cent in 2005, more than a full percentage point lower than the level seen in 1999. "As of 2005, the median amount of RRSP investment held by Canadians age 55 to 65 was only $60,000," adds Tal. "In today's low interest rate environment, the interest payments on such savings would amount to an income inflow of only a few thousands dollars a year." The increase in total RRSP contributions also masks a growing income disparity, given that most of the growth is attributable to Canadians who earn more than $80,000 per year. In 2005, only 20 per cent of Canadians between the ages of 35 and 64 with a yearly income of less than $30,000 contributed to their RRSPs. At the same time, the declining relative importance of employer-sponsored pension plans is doing little to remedy this gap. The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/srpt_rrsp_022007.pdf. CIBC World Markets is the wholesale banking arm of CIBC, providing a range of integrated credit and capital markets products, investment banking, and merchant banking to clients in key financial markets in North America and around the world. We deliver innovative full capital solutions to growth-oriented companies and are active in capital markets. We offer advisory expertise across a wide range of industries and provide top-ranked research for our corporate, government and institutional investor clients.