Ahead of the next federal budget, the Canadian Life and Health Insurance Association is recommending the government allow Canadians to hold annuities within tax-free savings accounts.
The CLHIA noted in its submission to the Department of Finance that more Canadians are reaching retirement without the security provided by a defined benefit pension plan. As such, it emphasized the government could provide several tools to help Canadians get the most out of the retirement vehicles that are available.
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In particular, it noted savings accumulated in TFSAs are more often going towards supplementing retirement income, despite their design as largely liquid plans for the short to medium term.
“What we find is that consumers are actually intending to use [TFSAs] as supplements for retirement income,” says Ron Sanderson, director of policy-holder taxation and pensions at the CLHIA. “They are accumulating significant amounts of capital with their TFSAs or certainly hope to. And the question is, how can they use those efficiently in retirement?”
People want guaranteed, predictable income in retirement like what they can get from the Canada Pension Plan, old-age security or a defined benefit pension, says Sanderson, noting they can’t get that security from their TFSAs.
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“What we’re suggesting, given how people are actually intending to use these [accounts], is that they be able to waive that liquidity right in order to get a guaranteed income within the TFSA,” says Sanderson. Key to the strategy, he notes, is that the income from an annuity held in a TFSA would be tax-free, thereby boosting the amount that would make it into seniors’ pockets relative to a traditional annuity vehicle.
The submission noted TFSA savers wouldn’t have to waive their liquidity rights until they elected for a guaranteed income at age 55 or later. As a result, they could preserve the liquidity of their TFSA investments until that time.
As part of its submission, the CLHIA also suggested the government should consider loosening regulations around the Canada Infrastructure Bank to make Canadian infrastructure a more attractive option to private investors. As well, it suggested the government should be more active in supporting Canadians’ access to pharmaceutical drugs through employer plans by including them in the pan-Canadian Pharmaceutical Alliance.
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Given how more Canadian are using TFSAs, should the government introduce more flexibility to allow Canadians to hold annuities within them or should liquidity remain the focus? Have your say in Benefits Canada‘s weekly online poll.
Last week’s poll asked whether the idea of dedicated paternity leave is a good idea. Just over half (52 per cent) of respondents disagreed, suggesting the government has already made enough changes to parental leave recently. And a slight minority (48 per cent) felt a separate leave is the best way of ensuring fathers take time away from work after the birth of a child.
