Posts Tagged ‘rrsp’

Why are employees leaving free pension money on the table? – The Globe and Mail.

Fred Vettese is the chief actuary at Morneau Shepell, a human resources and actuarial consulting services firm.

Canadians are forgoing as much as $3-billion annually by not taking full advantage of employer matching contributions within their company defined contribution (DC) pension plans, according to a recent Sun Life Financial report. One has to wonder why employees would pass up free money when there are no strings attached.

Employees in most DC plans have the option of contributing extra, and if they do, the employer makes a matching contribution on their behalf. Sometimes it is a partial match, such as 50 cents for every dollar contributed by the employee, and sometimes it is a full match. Employers offer contribution matching to encourage employees to save more for retirement.

To gain some insight into why a significant percentage of DC participants balk at contributing more, I analyzed data from a number of DC pension plans for which Morneau Shepell does record-keeping. My investigation, which encompassed tens of thousands of employee records, turned up the following:

  • About one third of participants in a given plan do not make an optional contribution, even if it is 100 per cent matched by the employer.
  • Up to two thirds will not make an optional contribution if the basic required contribution they are already making is high, such as 4 per cent of pay or more.
  • One would expect older employees to contribute more since they will get their hands on the employer’s money sooner. But it turns out the impact of age is quite minimal, especially if we correct for salary differences. In some groups, a fifth of the employees in their 50s do not make optional contributions.
  • Salary level has a big impact on optional contribution rates but only up to the average national wage level – the low $50,000s. In one case, nearly half of employees in their mid-40s who were earning under $50,000 opted not to contribute versus only 18 per cent of employees in the same age group who were earning over $50,000.
  • In plans where the range of optional contribution rates is limited, the employee’s decision is practically binary. The vast majority either contribute enough to earn the maximum employer matching or they contribute nothing. This suggests that deciding how much to contribute is not based on ability to pay or on perceived retirement income needs, but rather on whether or not one understands the idea behind the optional matching.

What is noteworthy is that many of the employees who elect not to make optional contributions to their DC plans still contribute to their own Registered Retirement Savings Plans (RRSPs). According to Statistics Canada data, over half of the participants in pension plans, including DC plans, also contribute to RRSPs. A rough estimate is that several hundred thousand DC plan participants are forgoing employer matching contributions in their DC plans and instead make personal RRSP contributions that are not matched.

Read the rest of the article here…

Why are employees leaving free pension money on the table? – The Globe and Mail.

H&R Block has offered their top 10 tax myths:

Maternity leave income is not taxable. “You are required to report your EI benefits as income. In most cases, Service Canada withholds less than the lowest tax rate so you may have tax obligations at the end of the year.

RRSP contributions do not have to be reported if I do not use the deduction. “Even if you are not claiming a deduction for the contributions you made in the year, you are still required to record the fact that you made them. So all your contributions from March 2, 2012 until March 1, 2013 should be recorded on your 2012 tax return.”

Tips are not considered income. “Servers and others working in the hospitality industry are required to record and report their tips on their tax return. For servers, tips may be as much as 200-400 per cent of their income.”

Students get refunds on their tuition. “In order to receive a tax refund, you need to have overpaid your income tax during the year. If a student does not have taxable income, they cannot use their tuition and education credits on their return. They have the option to transfer up to $5,000 to a parent, grandparent or spouse or they can carry forward credits to use in future year.”

Mothers are required to claim the children first. “The lower income spouse is required to claim childcare expenses whether it is the mother or father. Either parent can claim the child tax credit.”

I earned less than $10,000 so I do not have to file a tax return. “Even if you did not earn more than the $10,822 personal amount, filing a tax return may trigger benefits like the quarterly GST/HST payment. And if you had tax withheld, you should receive a refund.”

I can claim a flat rate amount for my business mileage. “Self-employed Canadians are required to keep a logbook to calculate the auto expenses for their business.”

Child support is a tax deduction. “Unless your agreement is dated before May 1, 1997, child support payments are reported on your tax return but they are not a deduction or included in income.”

If I work outside of the country, I do not need to file a tax return. “The Canadian tax system is based on residency. If you are emigrating, you should indicate your date of exit on your last tax return. If you are working outside of the country but have substantial residential ties to Canada still, you will be required to file a Canadian tax return.”

Mortgage interest is a tax deduction. “Only self-employed Canadians who work from home are allowed to claim a percentage of their mortgage insurance as a business expense. The tax benefit of owning a home comes when you sell. Every Canadian receives a capital gains exemption on the sales of their principal residence.”

http://www.hrblock.ca/documents/TS13%20Media%20Advisory%20Tax%20Myths.pdf

 

Five Risks to Future Income

Longer life spans mean cash flow assumptions need to change

Filed by Staff, editor@Advisor.ca , Aug 7, 2012

In a recent speech at the Canadian Institute of Financial Planners annual conference in Ottawa, Peter Drake, vice president, Retirement and Economic Research, Fidelity Investments Canada ULC called attention to the new retirement realities facing Canada’s baby boomer generation and highlighted the importance of taking account of the five key risks to retirement income as part of the retirement planning process.

Drake emphasized that the conventional wisdom about retirement planning needs to be adapted to suit the new environment faced by today’s Canadians who are retired or about to retire. He pointed out that financial advisors can play a crucial role in helping Canadians understand that their retirement planning choices must not only reflect the longer lives we are now living and the volatility of capital markets, but also changes to Canada’s retirement income system.

via Five Risks to Future Income | Canadian Capital.

Health Officials have proposed that warning signs be placed on all alcohol bottles to tip off drinkers about the possible peril of drinking a pint or two of any alcoholic beverage.

1. WARNING: Consumption of alcohol may cause you to wake up with a breath that could knock a buzzard off a wreaking dead animal that is one hundred yards away.

2. WARNING: Consumption of alcohol is a major factor in dancing like an idiot.

3. WARNING: Consumption of alcohol may cause you to tell the same boring story over and over again until your friends want to assault you

4. WARNING: Consumption of alcohol may cause you to thay shings like thish.

5. WARNING: Consumption of alcohol may cause you to tell the boss what you really think of him.

6. WARNING: Consumption of alcohol is the leading cause of inexplicable rug burn on the forehead.

7. WARNING: Consumption of alcohol may create the illusion that you are tougher, handsomer and smarter than some really, really big guy named Psycho Bob.