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About 46 per cent of Canadians reported that they had made a contribution to their RRSP in 2016 or were going to by the March 1 deadline.

Getty Images/iStockphoto

The registered retirement savings plan contribution deadline may be less than a month away, but an increasing number of Canadians are choosing not to contribute, for a number of reasons, according to a report released this month.

Bank of Montreal's survey of 1,500 Canadians conducted late last year revealed that 46 per cent of Canadians either have or intend to make contributions to their RRSPs by the March 1 deadline, down 4 per cent from its poll of a year ago.

However, while that number is down, the overall contribution amount is up, with an average of $5,088 being contributed compared with $3,984 coming into last year's deadline.

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The reasons given for less participation varied, from lack of funds (42 per cent), more urgent expenses (28 per cent), or other investment options (10 per cent.)

Robert Armstrong, vice-president of BMO Asset Management in Toronto, agrees that while more pressing expenses may be one reason, he adds that the continued rise in the popularity of tax-free savings accounts may also be a factor as people look to invest their money in different ways.

"For some people the preference for a TFSA is greater than the RRSP," he says. "They're both great saving vehicles, it's just everyone's got their own personal preference and their own financial situation."

However, while he says it is "unfortunate" that fewer people are investing in RRSPs, the average contribution's rise nationwide of more than $1,100 year-on-year is a positive sign. He puts that down to Canada finding itself in the midst of an economic expansion of late. As a result, more people are working, consumer confidence is better and those with jobs are feeling more positive about their financial position.

On top of that, those who are home owners are feeling richer because of the value of their property, making it easier to perhaps reallocate money from mortgage payments and investing it instead in an RRSP.

Mr. Armstrong sees average RRSP contribution levels remaining robust, but he has one reservation.

"I think the unemployment rate is going to be one of the greatest influences on this trend, and as long as the unemployment rate is slowing ticking down, these numbers should continue to slowly tick up," he says.

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One of the great outliers in the survey was Alberta, which led the way in both the percentage of respondents who had already contributed to their RRSP (56 per cent) as well as the average contribution amount ($7,333), about $700 more than the next highest region, British Columbia.

In his opinion, Mr. Armstrong says the uncertainty of employment in Alberta, and oil-based jobs in particular, may have caused a change in financial habits.

"They've gone from spending to a little bit more saving for their future just because there are a lot of concerns about their future and the future of the oil patch right now," he says.

For those who are unable to contribute this year, Mr. Armstrong advises clients not to take their foot off the gas completely. He says that while it's not the preferred route, it's not a major issue as long as it is just temporary.

"We always suggest to people if you have to take a bit of time off contributing to your RRSP, don't take it off completely, just reduce it to a smaller monthly contribution," he says.

Carol Bezaire, senior vice-president of tax and estate planning at Mackenzie Financial in Toronto, says fewer Canadians are contributing to their RRSP because they often have a high debt load, particularly with mortgages, and student debt for younger Canadians.

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The TFSA is also proving attractive for younger Canadians, too, particularly for those who may be working in either part-time or lower-paying jobs, and don't want their money tied up.

"Most people who are working in Canada right now want flexibility," Ms. Bezaire says. "Maybe I need to tap into that money without having to have a tax hit in April."

In addition, she says that many self-employed people, with their own corporations, are taking dividends rather than taxable income, so they're not generating the RRSP room. By doing so they are building wealth within their corporation which is going to form the bulk of their retirement income.

However, she adds that it's hard to say that the RRSP program is not as popular overall, particularly when one looks at its unique features. They include the first-time home buyer's plan or the lifelong learning plan, which may prove particularly appealing to younger investors looking to get on the property ladder or go back to school.

Melanie Adams, a Sun Life adviser who runs Adams and Associates Financial Solutions Inc. in Barrie, Ont., says that BMO's figures suggesting fewer Canadians are contributing to RRSPs are hardly surprising to her, as she sees much the same with her own clients.

Those who prioritize saving monthly, though, are more successful in reaching their financial retirement goals, she says, compared with clients who save only what is left over.

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"When they don't have a focused savings program and they're just trying to save what's left instead of save first and spend what's left, I do think more and more Canadians are getting into trouble with the spend first, save later [philosophy.]"

Preet Banerjee discusses the basics of how an RRSP works and what you need to know before the deadline.
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