Pension plans would be cut back to lessen the tax burden. If retirement savings are subject to tax, those who pay down mortgages or buy larger principal residences will earn higher rates of return, after tax, than those who buy stocks, bonds or GICs. More money will be invested in housing - less in factories and business. To measure the cost of the retirement savings system, the Department of Finance has chosen, as its benchmark, the current tax system without retirement savings incentives, capital gains exemptions or dividend tax credits. By taxing the inflation component of investment returns, this benchmark system provides a hostile environment for saving in general and retirement savings in particular.
Investors are hard pressed to earn, after tax, a positive real rate of return.
The cost of accumulating ad adequate retirement income is more than double under the current system. If anything, this estimate is high as it does not take into account the contribution that retirement savings plans make to the health of the Canadian economy, and the extent to which retirement savings plans reduce the cost of income-tested government programs. The retirement savings system is, in most respects, a reasonable compromise between equity and simplicity. In some instances, the system fails to provide a level playing field. At a minimum, future changes to the retirement savings system should lessen, not aggravate, these inequities.