Pension plan increase a net benefit: StatsCan

RRSP contributions would decline, but those with small plans would see big gain

OTTAWA— A new report by Statistics Canada says automatic increases in registered pension plans are most helpful to people who don’t save much in registered retirement savings plans (RRSP).

The report noted that there is some reduction in RRSP investments when pension plan contributions are increased, but the automatic increases are a net benefit.

“Moreover, the response tends to be smaller for workers with weaker histories of saving in retirement accounts,” author Derek Messacar wrote in his report released Monday.

“Employer sponsorship and other forms of automatic saving may, therefore, matter a great deal in helping more vulnerable groups save for their retirement.”

The report found that for workers earning near the Canadian average, a $1 automatic increase in registered pension plan contributions resulted in an average reduction in RRSP contributions of 55 cents.

But for workers who did not save much in an RRSP, the $1 automatic increase in registered pension contributions increased net savings by about 95 cents.

Meanwhile, for workers who save regularly for retirement, the $1 automatic increase was largely offset by a similar reduction in RRSP contributions.

The Statistics Canada report looked at personal income tax data from1991to 2010 to see if increases in registered pension plans increased retirement savings or redirected savings that would have been made elsewhere.