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OSSTF District 11- Thames Valley
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District 11 Office |
Education Matters Online
Feature
Volume 2, Issue 1: November 5, 2003
Teachers' Pension Plan and RRSP RoomBy Marie C. Blanchet, Hon. B. Comm, CFP, RFP, CIM, FCSI |
Many of you may have been surprised to see an adjustment on your tax assessment this spring indicating that your RRSP contribution room for 2003 was either zero or significantly reduced, limited to any carry forward room you may have had.
The Ontario Teachers’ Pension Plan (OTPP) amended the plan in the last few years and reduced the Canada Pension Plan integration factor. This means that you will get to keep more of your pension at age 65 when TPP and CPP are integrated. Although this enhancement will limit your ability to contribute to your RRSP in 2003 and possibly next year, it will benefit you immensely in retirement.
The impact of the integration affects your RRSP contribution room on two levels. First, your 2003 limit will be eliminated and future ones (2004 & 2005) may also be significantly reduced (depending on whether or not you have any RRSP contribution carry forward). The pension adjustment has also been adjusted to permanently reduce your contribution limit by approximately $500.
The actual mechanics are best explained by the example detailed in the May, 2002 issue of Pensionwise from OTPP:
"Jane, employed since 1990 as a full-time teacher, earns $60,000 annually. Based on her full participation in TPP, she has in the past been entitled to make RRSP contributions of $2,100. The one-time reduction to her RRSP room is $5,100 in 2003 which will eliminate her ability to contribute in 2003, but also eliminate her contribution room for 2004 as well and partially reduce her 2005 ($5,100 - $2,100 (2003) - $2,100 (2004) = $900 negative room for her 2005 tax year).
For teachers who may have significant carry forward room, they will find that their "extra" room has now significantly disappeared or been eliminated."
So what does one do with an "extra" $2,000 of savings? There are a number of options to consider, depending on your particular issues.
For those of you who have in the past diligently contributed to your RRSP for the tax savings and increased retirement income, you may want to continue to save in the same amount but direct your savings to a cash (or non-RRSP) account. In order to ensure the account is tax efficient, you may want to consider directing your savings to an equity investment, provided this fits your particular risk tolerance.
Another option for your savings is to consider an RESP for your child(ren). For those of you who have post-secondary aspirations for little Johnny or little Jane, you would be wise to use these "extra" funds towards an RESP. In an RESP, the funds grow on a tax deferred basis, the government contributes an additional 20% to the account through the Canada Education Savings Grant and the funds, when withdrawn, will be taxed in the child’s hands at their tax bracket – great family tax planning!
You may also wish to consider directing the money towards your mortgage in the form of a lump sum on the anniversary date or increase your monthly mortgage payments and direct the extra funds to the principal.
If you wish to further discuss these issues or any other financial planning issues, please do not hesitate to call our team of financial advisors at OTG Financial Inc. at 1-800-263-9541. Click here for information about free financial planning consultations being held in London in January 2004.
Marie C. Blanchet, Hon. B. Comm, CFP, RFP, CIM, FCSI is a salaried financial planner with the OTG Financial Inc., a financial organization dedicated to helping teachers and their family members achieve financial independence. Marie brings to the organization over ten years of experience in the financial planning field. The above comments are presented for information purposes only and should not be relied upon as a substitute for professional advice in specific situations.
About OTG Financial:
Founded in 1975, OTG Financial (formerly Ontario Teachers' Group) was established to equip education workers with preferred access to superior financial services. Today, OTG Financial is a dynamic enterprise that is unique, experienced and aware, providing Ontario's education community (and immediate families) with cost effective access to investment advice, financial products, financial planning, and mortgage services.
A significant benefit is their not-for-profit mandate. This means their sole focus is on making money for you, not for them, by offering products and advice that avoid the higher costs found with other providers. Result: you reap the direct benefit of having more of your money working for you.
