 Even if you’re years away from retiring, you’re wise to be thinking about retirement planning. How much money will it take to be financially independent? That’s very much up to you. Some experts say you’ll need up to 70% of your income before retirement. One of the most popular ways that Canadians save for retirement is through the purchase of Registered Retirement Savings Plans (RRSPs). The most recent Statistics Canada data indicates that RRSP contributions in 2005 totalled $30.6 billion; estimated holdings in RRSPs that year exceeded $500 billion. With the variety of RRSPs available and changing government rules, it can be a daunting prospect to decide how much to contribute, to what type of plan.
 Our expertise can definitely help you work out a more comprehensive financial needs analysis, make your retirement planning easy, find the right financial institution and amount of RRSP contributions taking into consideration your goals, desire and financial ability.
Here you can find a brief overview of the types of RRSP vehicles available, and look specifically at the RRSP products offered by life insurance companies and the advantages they offer to you.
2007 CONTRIBUTION LIMIT
In 2007, the RRSP contribution limit is set at 18% of 2006 earned income to a maximum of $19,000 minus a Pension Adjustment (PA) if the taxpayer is a member of a Registered Pension Plan (RPP) or a Deferred Profit Sharing Plan (DPSP). Earned income includes the following (this list is not complete): salary, net income from self-employment, alimony and rental income. It does not include: income received from the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) and Old Age Security (OAS), annuity income from RRSPs, DPSPs and RPPs, payments out of a RRIF and retiring allowances.
Additional contributions may be made if there is unused contribution room from previous years.RRSP contribution room for the year and unused contribution room from prior years are calculated by the Canada Revenue Agency (CRA) and are shown on your Tax Assessment Notice.
Individuals who terminate participation in either an RPP or DPSP prior to retirement, whose total of pension adjustments during the period of participation in the plan was larger than the amount of benefit, receive a Pension Adjustment Reversal (PAR) that effectively restores the lost RRSP contribution room.
If you are unsure of your contribution limit or unused contribution room, call the TIPS (Tax Information Phone System) number, listed under CRA in the blue pages of your telephone book.
Pension Adjustment
The PA is the value of benefits accrued in an RPP or DPSP in a year. This amount will be reported by the employer to employees on their T4 slips. (The T4 slips that employees received in February 2006 indicated the PA for the 2005 year. This amount is necessary to determine the RRSP contribution limit for the 2006 year.)
CHOICE OF PLANS
There is a wide choice of products available to fund RRSP purchases, offered from a variety of sources. The primary types of RRSP vehicles are:
Interest-bearing funds. These are designed to provide you with stability of return through interest earnings. There are many such funds available. These range from short term accounts to those that provide a specified guaranteed rate of interest for varying terms. Insurance companies, trust companies and banks offer many types of interest-bearing funds.
Market-based funds (“segregated funds” of insurance companies and mutual funds).These are funds the value of which depends on the market performance of securities they hold such as equities or common stocks, bonds, mortgages, real estate, and so on. They are offered by insurance companies, trust companies, investment dealers and chartered banks. Information about their funds may be obtained directly from these institutions. They can tell you about the past performance of their funds and the securities held by them. Comparison information on the majority of these funds is widely available, including through major newspapers.
Market-based funds offer a greater potential for growth than interest-bearing funds in the longer term, but be aware that they do not provide guarantees (with the exception of "segregated funds”). When you retire, the value of the “units” in your fund may fluctuate depending on the value of the securities in the fund at that time. This is the chance you take with them.
We can help you to choose a right insurance company and open interest-bearing and market-based fund RRSPs for you through a product called a deferred annuity or accumulation annuity. It is called a deferred annuity because it provides for income to start at some future date, called the maturity date (say, when you choose to retire) although no later than the end of the year in which you turn 69 years of age. The deferred annuity is a flexible product, allowing for retirement income payout options (including a RRIF) from the insurer or from any other financial institution.
In an interest-bearing RRSP, your payments earn competitive interest rates on a fixed rate basis, generally for periods of one to ten years. (These are similar to trust company and bank Guaranteed Investment Certificates.) At the end of each selected period, the accumulated funds are then renewed at the option of the owner at the then-current rates for the same or a different period of time. The principal is guaranteed as are the interest earnings for each selected period, up to the limits specified in the industry’s consumer protection plan (see following page). Daily interest is also an option that provides complete flexibility for the RRSP funds, generally at rates similar to banks’ savings deposits.
With a market-based fund RRSP, your contributions are invested in a “segregated fund”. The accumulated value varies according to the performance of specific securities, held by the segregated fund. The assets of the segregated fund are held separate and apart from the general assets of the insurance company. Contracts sold to individual policyholders provide a guaranteed “floor” below which the value of the accumulation at maturity or death may not fall. The floor is a minimum of 75 per cent of all premiums paid, regardless of what has happened to the value of the fund. Some companies offer a 100 per cent guarantee, while a few others permit periodic resetting of the guarantee or locking-in of the gains, during periods of superior fund performance.
 This valuable feature of life insurance “segregated funds” distinguishes them from the market-based funds of other financial institutions that have no guarantees.
Strength: The Canadian life and health insurance industry is one of the best capitalized and strongest financial sectors in the world. Its Consumer Protection Plan, administered by the Canadian Life and Health Insurance Compensation Corporation (Assuris), provides protection to policyholders of its member companies in the event of an insolvency, guaranteeing up to $100,000 of RRSP money (separately for individual and group policies) per individual per member company. This protection exists even if your locked-in interest period exceeds five years. (Assuris also protects life and health insurance, annuities and non-registered savings.)
Protection against creditors. RRSPs held with life insurance companies offer potential protection of RRSP assets from creditors. Should the policyholder encounter financial difficulties, creditors may not seize the funds if the RRSP is with a life insurance company and if the named beneficiary is the spouse, child, grandchild or parent of the life insured or if the beneficiary designation is irrevocable. (Of course, if the policyholder transfers funds to a life insurance company in anticipation of an impending bankruptcy, this may be considered an attempt to avoid creditors and the protection would not apply.)
Fast settlement of death claims. Life insurance companies offer you the option of naming a beneficiary. This means that, in the event of death, your RRSP funds do not go through your estate. They are paid directly to your beneficiary. This means a savings both in time and in legaland probate fees.
Retirement options. At retirement, insurance companies offer a full range of options for your RRSP funds, including Registered Retirement Income Funds (RRIFs) and annuities payable for life (the latter only available through life insurance companies).
Flexibility. Insurance company RRSPs offer excellent flexibility when it comes to periodic contributions, withdrawals, transfers and retirement options.
Personalized service. Insurance companies offer the convenience of dealing with a professional representative (often in your office or home).
We are committed to protecting the privacy, confidentiality and security of the personal information we collect, use and disclose. Your personal information, including your medical history, will be collected, used and disclosed only for the purpose of providing you with the requested insurance services.
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