A New Saver’s Credit to empower modest-income Canadians 

24 September 2019

Many Canadians are struggling to save. Behavioural science and our personal experience reinforce that we’d rather spend than sock away our hard-earned dollars.

But for modest-income Canadians, it’s proving to be less of a choice. 

Recent research is highlighting some alarming trends. Fully one third of Canadians are “asset-poor,” lacking the assets like housing, cars and investments that offer the financial buffer to keep them above the poverty line. Many are struggling to save for retirement, with a recent study finding that the median retirement savings of Canadians age 55-64 without pensions is a meagre $3,000.  

  
It’s not for lack of wanting to save, however. Surveys suggest the desire to save is virtually unchanged for all households up to $100,000 in income.  
  
There are two key challenges. The first is that those on modest incomes often are simply not earning enough to be able to save.  
  
The second is that they are limited in their use of tax advantaged savings vehicles, benefiting far less than those in higher income brackets. This is because they are far less likely to have access to a workplace pension, or to use a Registered Retirement Savings Plan (RRSP).  

The upshot? Serious risks to the financial security and quality of life of modest-income earners today and for the future, requiring some serious innovation of Canada’s financial security architecture.  
  
Thankfully, there could be a ready-made solution. We call it the Canada Saver’s Credit (CSC).  
  
The CSC is not an entirely new idea. It borrows aspects of a U.S. program for low-income earners called the Saver’s Credit. In a Canadian context, it was initially proposed by two of the country’s leading social policy experts, John Stapleton and Richard Shillington.  
  
The model is reasonably simple, leveraging the most attractive savings vehicle for modest-income Canadians: the Tax Free Savings Account (TFSA). The CSC would be a refundable tax credit, providing moderate-income Canadians with a dollar-for-dollar match of up to $1,000 per year for contributions into a TFSA Account.   
  
Importantly, it would be as easy to access as possible. Eligibility would be automatically determined through the annual tax-filing process, and the credit would be deposited directly into the saver’s TFSA account at their financial institution. To increase TFSA use and access to the CSC match, employers would be encouraged to offer workplace group options, and the CSC would be promoted through financial literacy campaigns and at key times, such as the tax filing period.  

How much would the CSC cost? Our simple, static estimate suggests a cost ranging up to approximately $550 million. Representing about one per cent of the $45 billion in annual federal government tax expenditures on RRSPs and pension plans, this seems like a smart investment.  
  
In sum, the CSC would be a simple, flexible, cost-effective way to help modest-income Canadians increase their savings – whether for improved day-to-day financial security, major purchases, or retirement. Saving will always be hard, but it can be easier for those who need it most.  
  
The Canada Saver’s Credit proposal, authored by Alex Mazer, Jonathan Weisstub and André Côté, was published by Maytree and Common Wealth on behalf of the Common Good Retirement Initiative.