Are you a futile saver? Supposedly one in three Canadians is so poor that any attempt to save money for a rainy day will result in being kicked off the gravy train of various government giveaways.
The poster boy for futile saving is the RRSP-bashing social policy researcher Richard Shillington. In 2003, he wrote the controversial C.D. Howe Institute paper New Poverty Traps: Means-Testing and Modest-Income Seniors. (Refer to his Web site at www.shillington.ca and his calculator, entitled Take Stock of Your RRSP.)

The gist of it is that any RRSP below $100,000 is just not worth saving up for. The calculator shows how much government goodies are forfeited by accumulating even modest levels of wealth.

The basic idea is not unlike the one promoted by "recovering financial planner" Alan Dickson in his book Free Parking. Subtitled "Why RRSPs could be hazardous to your financial health," the book showed how low-income people can maximize government-sanctioned transfers of wealth.

We're talking seniors who not only have saved nothing over a lifetime but who may not even have worked long enough to accumulate credits for the Canada Pension Plan (CPP).

Their chief means of support are Old Age Security (OAS) and the Guaranteed Income Supplement (GIS), plus various provincial tax credits and welfare programs and subsidies.

These bizarre ideas promoting total reliance on the state rather than self-reliance received a further boost in a recent edition of Fifty Plus magazine.

An article entitled "No incentive to save" attributes the following quote to pension actuary Malcolm Hamilton: "If you design a system that encourages sponging, then that's what you're going to get ... It's silly to design a system where rational people behave like sponges and then think poorly of them for behaving that way. I don't like the system, but there it is."

The Canadian Association for Fifty Plus (formerly CARP) also held a press conference which suggested some seniors are being short-changed by the CPP. In effect, organizations like CARP are saying we are asking too much of seniors when we insist they go through the laborious process of filling out paperwork to apply for free money.

Whether the CPP or the GIS, these lobbyists want to make the process completely automatic. As things stand, it's necessary to undergo the burden of filling out an annual tax return before receiving these tax-funded freebies.

Thus, in October, Senator Percy Downe introduced a notice of inquiry in the Senate urging the government to make more of an effort to let seniors know about the GIS entitlement.

These concepts, and similar Shillington ideas, were picked up by CBC national radio.

Its World At Six report described an elderly pensioner who found work as a part-time highway crossing guard, lost some of his GIS benefits, then decided that working wasn't worth it.

A different form of the "RRSP hurts GIS benefits" argument occurs at a higher level for retirees hoping to draw OAS benefits.

An earlier column mentioned a government Web site (www.sdc.gc.ca) which helps people identify the maximum pension income that won't trigger OAS clawbacks.

According to Vancouver-based Steve Salter, developer of Fimetric System's RRIFmetic, a 64-year-old with $750,000 in an RRSP can expect almost full OAS. With $1.5-million in an RRSP, most of the OAS will be clawed back.

But even these relatively affluent savers hit a "futile saving" threshold once they try to save or invest outside government-sanctioned tax shelters like Registered Pension Plans or RRSPs. The same Malcolm Hamilton says, "for those with high incomes it makes sense to maximize RRSP contributions, minimize non-deductible interest payments and buy an expensive principal residence."

However, Hamilton adds, "saving outside a tax shelter is, for these people, futile because virtually all of their return will be lost to inflation, taxation and investment fees."

But what's good for high-income earners is not necessarily good for low-income individuals. For the most part, Hamilton agrees with the logic of the Dickson/Shillington school. Low-income Canadians qualify for many valuable government benefits, but only if they don't have too much income.

"They can have assets, but not income. Consequently, after 65 they want to have their savings outside RRSPs where they can be drawn down without triggering clawbacks."

If low-income Canadians use RRSPs, they should try to get their money out before 65, before the clawbacks kick in, Hamilton says. This strategy is often counselled for middle-income earners caught between these extremes: it's known as the "RRSP meltdown strategy."

However, Hamilton doesn't think Canadians should let the OAS clawback change their retirement savings plans. "The clawback rate is relatively low [typically 8% or 9% after tax, compared to a GIS clawback rate of 50%] and kicks in at an income of about $60,000 -- much more than most seniors have or need."

After decades of socialistic tinkering with tax and pensions, Ottawa has succeeded in creating a bizarre system which discourages both the poor (those with annual incomes of, say, below $25,000) and the rich (those with incomes above $100,000) from saving too much.

"It would be nice to have a system that rewarded thrift and savings," Hamilton concludes. "For middle income Canadians, we have such a system. For those with high incomes and low incomes, we do not."