Canadians will contribute $20 billion to tax-free savings accounts (TFSAs) next year and the market will mushroom to $115 billion by 2013, says a CIBC World Markets report.
“The 2008 federal budget gave birth to arguably the most dramatic change in Canada’s savings system since the introduction of the registered retirement savings plan,” the report says.
CIBC expects the popularity of TFSAs will be similar to that of United Kingdom’s individual savings account (ISA).
Introduced in 1999, the ISA is now as $530 billion market. The number of accounts has been rising at a strong average rate of 6% a year.
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And with the British adult population hardly changed over the past decade, the share of U.K. citizens that use the ISA has risen to 37% in 2008 from 22% in 2000.
Benjamin Tal, senior economist at CIBC World Markets, says changes in the economy are driving Canadians to rethink their savings habits for the first time in 20 years.
Click here to read the report on CIBC World Markets’ website.
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Value of Employer Pension Plans Drops
Statistics Canada says the retirement savings of 4.6 million Canadian workers with trusteed pension plans lost some of their value during the first quarter of 2008, following six consecutive quarters of gains.
This loss reflected a decline in the price of stocks—the S&P/TSX composite index fell 4.9%—as well as reduced income during the first quarter.
The market value of pension fund assets declined 0.9% to $957.1 billion from $966 billion at the end of 2007.
Based on market prices, stocks accounted for 36.4% of total pension fund assets in the first quarter, down from 39.8% in the first quarter of 2007. The proportion of pension funds held in bonds rose to 34.5% from 31.8% while the percentage in real estate increased to 7.4% from 6.2% in the same period last year.
Short-term investments accounted for 3.1% (down from 3.6%), mortgages were 1.5% (up from 1.4%), and the remaining assets, which include pooled foreign funds, accounted for 17.1% (down from 17.2%).
The split between foreign and domestic holdings remained unchanged at 69.9% for domestic and 30.1% for foreign.
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OMERS Buys Maxxam Analytics
OMERS Capital Partners has acquired Maxxam Analytics International Corporation, Canada’s largest privately owned analytical laboratory services network, for an undisclosed amount.
“Maxxam is a great addition to our private equity portfolio,” says Paul G. Renaud, president and CEO of OMERS Capital Partners. “Not only is Maxxam a successful company in its own right, but its leadership in the growing, high-profile environmental, petroleum, food safety and DNA analytical services markets is the rationale for our investment.”
In addition to being the largest privately owned analytical laboratory network in Canada, the company is also the second largest in North America for environmental laboratory services.
Maxxam maintains 30 laboratory and service centre locations throughout Canada and has approximately 1,500 employees.
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Illness, Injury Would Delay Retirement
Many Canadians would need to delay retirement or dip into their nest egg in the event of a serious injury or illness, according to a poll.
The RBC Insurance/Ipsos-Reid Survey finds that three out of 10 Canadians have no personally purchased disability insurance and of these, 51% say they would have to work longer in the event of serious injury while 45% would use their retirement savings to pay the bills.
“It’s surprising that so many Canadians are unprepared to deal with a serious illness that would require time off work,” says RBC Life Insurance Company’s president and chief executive officer, John Young. “Failing to prepare for an illness or injury can put a serious dent in your financial future and may lead to difficult lifestyle changes.”
In addition to dipping into retirement savings and working longer, one in five indicated they would rely on family members for money. In fact, 76% agreed they would have to change their lifestyle and live more conservatively if they were hurt or became ill and unable to work.
The poll also finds that 38% of Canadians who have purchased their own disability insurance don’t feel they would have sufficient money to replace their total income if they were hurt or sick and unable to work.