RRSPs less popular since creation of TFSA, StatsCan data finds

Fewer people in their prime-aged working years contribute to registered retirement savings plans (RRSPs) now than they used to, according to new data analysis by Statistics Canada.

In a report released Monday, the data agency reports that about fivemillion Canadians between ages25 and 54 contributed to an RRSP in 2000. But that numberfell by a sixth to 4.2 million people in 2013, despite more individualsin the demographic group overall.

Canadians in that age group put $30.6billion into their RRSPs in 2000. By 2013, that figure had fallen to $22.5billion.

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More people in that cohort are withdrawing early, too, with 900,000 people taking money out of their RRSPs in 2000. By 2013, that had jumped to 1.3 million.

The data agency also found a correlation between the declining relative popularity of RRSPscompared totax-free savings accounts, which the federal government introduced in the 2009 budget.

RRSPs are tax deferment vehicles a contributor gets a tax credit up front, but must pay tax later on withdrawals, or a witholding tax for doingso before age 65. Canadians can contribute up to 18 per cent of their income in any given year to an RRSP, to a limit of $26,010 this year.

• Understanding tax-free savings accounts

Money contributed to TFSAs, on the other hand, gets taxed on the way in not out and is easy to access without penalty throughout a tax filer's life. For 2017, the TFSA contribution limit is $5,500.

In the first year they were created, twomillion Canadians contributed a total of$9 billion to TFSAs. Thatjumped to$15.9billion in2013 from threemillion people.

But withdrawals for TFSAs are becoming more common, too. For every dollar contributedin 2013, Statistics Canada says 47 cents now gets withdrawn somewhere else. In 2013, 1.6 million people took money out of their TFSAs, or more than half of those who have one. All in all, peoplewithdrew$7.4 billion that year.

"Both the frequency and magnitude ofTFSAwithdrawals are significantly larger than forRRSPs," Statistics Canada said.

It's not surprising to see that the more money someone has, the more likely they are to contribute to one of the two accounts in any given year. But one's preference for an RRSPversus a TFSA clearly depends on income levels.

Generally speaking, "the relative take-up rate ofTFSAscompared toRRSPsdecreases with income," Statistics Canada says.

• RRSPs vs. TFSAs how the 2 savings plans stack up

TFSAs are more popular among low-income people because they have fewer restrictions, and because low-income people don't get as much of a tax advantage from an RRSPastheir marginal tax rates are already comparatively low.

Low-income people are four times more likely to contribute to a TFSAthan to an RRSP. But RRSPs are more popular than TFSAs among every other income group, with 55 per cent of high-income Canadians contributing to one during the period, according to the data.

"The demand forRRSPsappears to differ, as expected, for individuals based on their levels of total income, as evidenced across income groups," Statistics Canada says.

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