Taxation risk
This risk affects your lifestyle if increased taxation reduces your anticipated retirement income. This form of risk could come from higher levels of income tax, the taxing of part or all of your income currently exempt from taxation (i.e., the Guaranteed Income Supplement), or the taxing of RRSPs or RRIFs in some fashion, other than when you take the money out. Naturally, all of the above possible initiatives would result in a loud public outcry. Economic pressure on federal or provincial governments to reduce their respective debts, however, could result in all areas of personal income being subject to review for additional tax.
Pension risk
This type of risk takes various forms. One form is for federal or provincial governments to reduce the net amount of pension you receive through Old Age Security (OAS), Canada Pension Plan (CPP), or Guaranteed Income Supplement (GIS). This could be done through taxation, increased taxation, clawbacks based on your other income, a reduction in the amount of money, or more restrictive eligibility criteria. As you may know, if your taxable income is over $53,000, your OAS is “clawed back,” or reduced by the amount of your income over $53,000. As mentioned earlier, the federal government has a proposed seniors’ benefit program which is to be introduced in 2001, which will have a significant effect on income and taxes. Another form of risk is a pension fund manager who does not invest money wisely–the return to the pension fund could be much less than what is expected. Or, an employer may not make any profit in a particular year and therefore decides not to contribute anything to the pension fund. An employer could also decide to reduce or eliminate some pension plan collateral benefits such as life insurance or health and dental plan coverage for cost-saving reasons.
After reflecting on the above overview, you can see how foresight, professional advice, and prudent planning can help to either reduce, or even eliminate financial risks.
