OTTAWA URGED TO PROMOTE TAX PREPAID SAVINGS
PLANS
The Edmonton Sun
Sun 14 May 2006

Page: 33
Section: News
Byline: BY JEREMY LOOME, EDMONTON SUN

Source:

There's a better way to save for retirement, says the
C.D. Howe Institute, and it
involves short-term pain for much more long-term gain.

Institute analyst Yvan Guillemette echoes the position of chambers of
commerce nationally and groups such as the Vancouver Board of Trade, which
recently wrote to the Harper government and asked it to consider promoting tax
pre-paid savings plans instead of RRSPs for low-income seniors.

"In such an investment vehicle, it's essentially the mirror image of an RRSP:
instead of paying the tax when you start withdrawing money from the plan in
retirement, you pay the tax at the front end," says Guillemette "When you take
it out to use in retirement, no tax is applied to it and it no longer counts as
current income."

Investors would, under such a plan, lose the benefit of rolling untaxed
income over from year-to-year in an RRSP and gaining more through compounded
interest. But C.D. Howe and others
note that the financial benefit from RRSP rollovers is minimal compared to
what's taken away.

"The key is that they have to be able to realize income from their
investments without having to declare it on a tax return as current," he says.
"It's a bit of a philosophical issue. Some will say it's fine, that if they have
some income in RRSPs, then perhaps they already have enough to support them and
the government shouldn't give them GIS."

One of the biggest problems with the GIS, say both Guillemette and
anti-poverty advocate Richard Shillington, is that very little information about
it - or about most government benefits, for that matter - is conveyed to
seniors. There's also little or no co-ordination between provincial plans
featuring clawbacks and their related federal counterparts.

And in some cases, a little information can be dangerous. Take a 2005
announcement by Ontario Seniors Minister Jim Bradley as an example. Bradley
referred to the GIS as part of the Canadian pension system and encouraged
low-income seniors to apply. "If you file an income-tax return - whether you owe
tax or not - you keep the GIS benefits flowing," he stated.

In fact, without knowing the impact on existing savings, keeping those
benefits flowing could cost a senior 50% of his or her investment income. If
seniors were to remove their income from RRSPs before age 65 and pay all of the
tax on it upfront, they'd be better off because the clawbacks would not go into
effect.

"Our concern is that there's not a lot of information out there that there
are much better options available to seniors than RRSPs," says Guillemette.

Shillington is less tactful. "Why are they so unwilling to talk about this or
to correct it? Because it costs them money. The government saves a lot of money
through clawbacks and the investment community has a big stake in RRSPs.

"It's embarrassing, really, to think that a country that supposedly cares
about seniors and the poor should behave this way," he said.

TOMORROW: The difficulty of making ends meet

© 2006 Sun Media Corporation. All rights
reserved.

Illustration:
• 1. photo by Darryl Dyck, Edmonton
Sun
• Many seniors are left wringing their hands when they find out what the
taxman has in store for them.
• 2. photo of YVAN GUILLEMETTE
•
Pay tax up front

Edition: Final
Note: Golden years ... Golden fears

Length: 505 words