TORONTO, Feb. 27 /CNW/ - With the annual RRSP season set to wrap-up on
March 1, 2007, Scotia Economics has released a study highlighting RRSP trends.
The report, entitled Diversification, The Retirement Plan of Canadians,
reveals a strong investor preference for real estate to bolster investment
returns. However, this trend may be rebalancing towards more traditional
financial investments due to changing economic factors, such as the cooling
off of Canada's hot housing market.
    "Are Canadians financially challenged to contribute to their RRSPs or are
they challenged financially to broaden their investment horizons?" commented
Aron Gampel, Vice-President and Deputy Chief Economist at Scotiabank, on the
issue of Canadians' lagging RRSP contributions in recent years.
    "While Canadians are utilizing RRSPs as part of their retirement
strategy, many of them are not taking full advantage of this important
tax-deferred savings option," noted Gampel. "Annual contributions have not
kept pace with allowable limits, so a significant unused gap has developed."
He added that a recent Scotiabank study also highlighted that an increasing
number of Canadians are now cashing out some of their RRSPs and accepting the
early withdrawal tax penalty.
    "Although Canadians have been increasingly diversifying their
wealth-generating investments, primarily in real estate, they should consider
the advantages provided by RRSPs to maximize the growth and performance of
their retirement savings," observed Gampel.

    Lagging RRSP contributions may reflect shifting Canadian investment
    priorities

    The report suggests that the issue of lagging RRSP contributions is not
simply a matter of funding challenges faced by consumers. Rather, it reflects
that Canadians have made some fundamental decisions regarding their investment
and spending priorities in recent years.
    "The availability of funds is not likely the critical issue since the
Canadian economy has been generating, on average, comparatively steady
employment, income and economic growth over the past decade," observed Gampel.
"For many Canadians, paying down debt has taken a higher priority. For others,
lifestyle changes may be at play. For example the rapid pace of technological
change in consumer electronics, may be contributing to a 'spend now, save
later' momentum."

    Rise of non-financial investments

    "Many Canadians have simply turned their attention to non-financial
investments, such as real estate, that could potentially provide them with the
financial flexibility and resources that they will need during their
retirement years," Gampel indicated.
    Citing a Statistics Canada study on both the size and distribution of the
financial and non-financial assets of Canadians, real estate won first place
as the primary asset of choice, with total real estate holdings amounting to
$2.4 trillion in 2005, or 42 per cent of total savings.
    The cumulative 56 per cent growth in real estate assets between 1999 and
2005 - both primary dwelling and vacation/investment properties - occurred
during a time of sustained increases in land and home prices, and a period of
generally less buoyant conditions in the stock market.
    Employer-Sponsored Registered Pension Plans (EPPs) were the second place
contributor to the increase in Canadian savings, reflecting 18.5 per cent of
total savings in 2005. However, RRSPs and other personal retirement accounts
placed a distant third of Canadians' savings at just 10.5 per cent.

    A gradual shift back to financial investments may be in the making

    The report adds that a rebalancing of Canadian personal investment
appears to be getting underway. "Investments in real estate have probably lost
some traction, while purchases of financial assets have likely regained some
momentum," noted Gampel.
    There are increasing signs that the hot housing market has begun to cool
off, with record prices cutting into affordability, sales, and construction
activity. At the same time, equity markets at home and abroad began moving
considerably higher in response to the continuing strength in international
economic growth, a stable interest rate environment, and the continuing solid
demand for commodities.
    "The changing performance of real estate assets versus financial
investments will likely continue to have an impact on how we decide to
allocate our savings in the months ahead, though non-financial assets are
likely to remain a big part of the diversification plan of Canadians for the
foreseeable future," concluded Gampel.
    According to Gampel, "With an eye on their retirement years ahead,
Canadians are likely to focus more on traditional savings vehicles, and take
advantage of the opportunities presented by RRSPs - compounded returns and
deferred taxes - for domestic and foreign stocks and bonds, including mutual
funds."

    Scotia Economics provides clients with in-depth research into the factors
shaping the outlook for Canada and the global economy, including macroeconomic
developments, currency and capital market trends, commodity and industry
performance, as well as monetary, fiscal and public policy issues.