Fewer people in their prime-aged working years contribute to registered retirement savings plans (RRSPs) now than they used to, according to new data analysis by Statistics Canada.
In a report released Monday, the data agency reports that about five million Canadians between ages 25 and 54 contributed to an RRSP in 2000. But that number fell by a sixth to 4.2 million people in 2013, despite more individuals in the demographic group overall.
Canadians in that age group put $30.6 billion into their RRSPs in 2000. By 2013, that figure had fallen to $22.5 billion.
More people in that cohort are withdrawing early, too, with 900,000 people taking money out of their RRSPs in 2000. By 2013, that had jumped to 1.3 million.
The data agency also found a correlation between the declining relative popularity of RRSPs compared to tax-free savings accounts, which the federal government introduced in the 2009 budget.
RRSPs are tax deferment vehicles — a contributor gets a tax credit up front, but must pay tax later on withdrawals, or a witholding tax for doing so before age 65. Canadians can contribute up to 18 per cent of their income in any given year to an RRSP, to a limit of $26,010 this year.
Money contributed to TFSAs, on the other hand, gets taxed on the way in — not out — and is easy to access without penalty throughout a tax filer’s life. For 2017, the TFSA contribution limit is $5,500.
In the first year they were created, two million Canadians contributed a total of $9 billion to TFSAs. That jumped to $15.9 billion in 2013 from three million people.
But withdrawals for TFSAs are becoming more common, too. For every dollar contributed in 2013, Statistics Canada says 47 cents now gets withdrawn somewhere else. In 2013, 1.6 million people took money out of their TFSAs, or more than half of those who have one. All in all, people withdrew $7.4 billion that year.
“Both the frequency and magnitude of TFSA withdrawals are significantly larger than for RRSPs,” Statistics Canada said.
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It’s not surprising to see that the more money someone has, the more likely they are to contribute to one of the two accounts in any given year. But one’s preference for an RRSP versus a TFSA clearly depends on income levels.
Generally speaking, “the relative take-up rate of TFSAs compared to RRSPs decreases with income,” Statistics Canada says.
TFSAs are more popular among low-income people because they have fewer restrictions, and because low-income people don’t get as much of a tax advantage from an RRSP as their marginal tax rates are already comparatively low.
Low-income people are four times more likely to contribute to a TFSA than to an RRSP. But RRSPs are more popular than TFSAs among every other income group, with 55 per cent of high-income Canadians contributing to one during the period, according to the data.
“The demand for RRSPs appears to differ, as expected, for individuals based on their levels of total income, as evidenced across income groups,” Statistics Canada says.