The hard thing about predicting is that involves the future. Things happen. Like the collapse of the Dippers and the ascendancy of the just-not-ready kid. And while I have no idea what will happen a week from today, the polls suggest there will be (a) a Lib minority, supported by the socialists or (b) a Con minority, which will soon be defeated by the barbarians. In the second scenario, it’s likely the G-G will allow the anti-Harperites to form a new government without another election – since we’re all tired of campaigning.
This is speculation, of course. The Conservatives may well retain most of their base and do better than it appears possible, with the ABC vote splitting in enough ridings to allow many blue seats with just over 30% of the vote. But there’s a mood in the nation. Change is palpable. The prime minister should have left after three terms.
My old friend Bill Casey gets it. I went to Nova Scotia a decade ago and campaigned for him as a Conservative. The former Ford dealer from Amherst won the seat, then (like me) countered Harper on a policy issue and was booted from the Conservative caucus for insubordination. He sat as an indie for a while (like me), then quit and now is trying to re-enter the House of Commons, this time as a Lib. But mostly he’s telling people in the riding that this election is all about one thing:
Guess what that message is?
Well, this post actually has an economic, financial and tax raison d’être. It’s about your TFSA. Lots of people have posted here over the last few days that they went to the advance poll and cast their ballot in favour of the blue guys simply because of this issue. Other commenters ridiculed them, suggesting they sold their souls (and the country) out simply to gain a tax advantage and make their own futures more comfortable.
It’s ironic this conversation was going on two days ago while we were all debating the court decision allowing the company-formerly-know-as-Stelco to walk away from twenty thousand retirees, cutting their benefits now and their long-term pension payments next year, because it’s run out of funds. This is one of the new economic realities.
Over 70% of Canadians have no corporate pension plan. Defined-benefit plans, which guarantee a future payment, are rapidly disappearing. Many defined-contribution plans, essentially glorified group RRSPs full of crappy mutual funds, are woefully inadequate. And we have a swampy economy which strongly suggests there will be more Stelco-type heartaches down the road.
In this new world – markedly different from that which defined the workplace and retirement a generation ago – controlling one’s own destiny has never been more critical. It’s why I’ve consistently recommended anyone given the option of commuting their pension – taking a lump sum payment rather than signing up for a monthly cheque from the administrator – grab it.
There are a number of benefits. Risks too, of course, but the advantages far outweigh. By controlling this money you can tailor the investments more to your needs, often securing better returns than the overly-conservative administrator. You also ensure 100% of the money is the property of your family, so if you croak too soon your spouse or kids get it all, instead of a small survivor payment that could run out in a few years. And while all of your pension cheque is taxable if you remain in the plan, when you commute it a portion can be taken as return-of-capital, which is not added to your taxable income, hopefully keeping you in a lower tax bracket. Finally, you prevent becoming a victim, like thousands of former Stelco workers.
Risks? Of course. You’re responsible for your own investment strategy, and could screw up. But so can the institutional pension plan – which is also subject to political and regulatory pressures you cannot control.
The choice is simple. You trust others, or you trust yourself. In the context of this election, that might translate into supporting a fat annual TFSA contribution limit which will accrue during your lifetime, or you vote for guys who say we need a stronger public pension plan instead. It’s sure not the only issue, but it touches the eleven million people who have already opened a TFSA. Over 90% have not maxed their plans, but they all have the ability to do so as they age, and to thus increase control over their own futures.
Also remember that whatever your corporate pension plan, income from a TFSA is taxless and non-reportable. In retirement it will not boost you into a new tax bracket (as will money from an RRSP), nor reduce CPP or OAS benefits.
In practical terms – as stated at the outset – there’s a fair chance the roll-back-the-TFSA guys will win. So, obviously, you and your spouse should ensure you have made the $20,000 contribution for 2015 and maxed out all previous years – even if you have to borrow the money to do so by the end of December (interest is not deductible). Then, see what happens next Tuesday morning. If the red-orange wave happens, it’s unlikely Parliament will resume before Christmas, or that there’ll be a budget prior to February.
So on Monday, January 4th, make sure you max the 2016 contribution limit. It will be messy and difficult for a new government to disallow a portion of TFSA contributions made in that calendar year, so it all might be shuffled off with an effective date of 2017. Or, existing contributions could be grandfathered.
Of course, it’s dumb we even need to consider this. The anti-Harper guys could have been just as effective without removing a key tool for achieving personal financial independence.
But maybe they don’t want you to be free. I better ask Bill about that.