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The RRSP battle in this corner The Consumers Asso By RICHARD DUNSTAN Examiner Staff Reporter Say youre about to turn 71 and you own Registered Reitrement Savings Plan RRSP to which youve been contributing for num ber of years Under current federal law you will soon have fairly easy choice to make Either you will buy life an nuitytum the RRSP funds over to life insurance com pany in return for monthly yment for the rest of your ifeor you will cash in the RRSP and pay oneshotin come tax on the thousands of dollars you ve accumulated And since $25000 or $50000 added to the rest of your in come if any for the year will attract high rate of taxation youll probably buy the annuity Thats not fair choice says Barries Tom Delaney an insurance agent and financial consultant who is also national RRSP spokesman for the Consumers Association of Canada He wants the law changed to expand the range of choices Lets start at the begin ning RRSPs were set up to encourage Canadians to save for their retirement Con tributions to RRSPs are tax deductable and income ac cumulated by RRSP funds is nontaxable while the plan remains in existence At any time before reaching 71 planowner may deregister the fund thus incurring tax liability on all principal and interest ac cumulated or use the pro ceeds to buy an annuity in which case tax is charged on paymentsagain both prin cipal and interestas they are received LATEST SHOT Delaney and the CAC have been sparring with the federal government for some time over RRSP legislation and Delaney fired his latest shot recently in Financial Times article copy of which had been sent to Ot tawa earlier In the article Delaney calls on the federal govern ment to look to the United States for model to follow in amending RRSP rules American equivalents of RRSPs may be used to buy annuities or cashed in for lump sum just as in Canada But Americans are also Your business By VINCENT EGAN Business and Consumer Affairs Analyst Thomson News Service In the months between now and Jan 15 cu will be hearing great dea about the Tokyo Round of trade and tariff talks The first thing to remember is that the talks are taking place in Geneva the staid city of Calvinhalf world away from the crowds and neon lights of the Ginza The second and more impor tant is that the trade sum mit will be major battle ground in the currently escalat ing confrontation between the forces of free trade and protec tionism Officially the talks are re sumption or continuation of the international negotiations that began in Japan in September 1973 Participants are the mem bercountries of the General Agreement on Tariffs and Trade GATI Since 1947 GATT has been the principal multinational ve WM allowed to make arrangements with the bank or trust company holding the funds to pay out monthly sums directly without pur chase of an annuity So whats wrong with an nuities Delaney says he refuses to be drawn into an argument over the numbers involved in evaluating annuities as good or bad investments If anyone wants to buy an an nuity he says let thembut if not they should not be for ced to Central to my position is freedom of choice he told The Examiner The freedom of the individual to make choice to deal with the financial institution hes been saving with thats the issue VOLUNTARY IN NATURE RRSPs he said in December 1976 letter to Donald Macdonald then federal finance minister are voluntary in nature unlike many private pensions and in free society Canadians should have the right to con trol over their savings And apart from the num 901s involved he said an nutites are chancy buy because the buyer loses all control over his capital in vestment You lose the principal sum he says Once youve signed contract and youve given your cheque over all control over the sum is lost Ability to recapture at least some of the principal could well be important in the event of major changes in ones financial situation he says Whats the alternative One option in use south of the border is called monthly benefit payments The bank or trust com any can be asked to make payments every month for specified period not longer an the statistical life expenctancy of the planowner or his spouse Payments are combination of rincipal and interest calcu ated like backward mortgagea loan from the individual to the trust company instead of the other way around In Delaneys proposal the plan owner would be able to withdraw some or all of the remaining principal in case of necessity though such step would naturally reduce or eliminate subsequent payments If the lanowner and his ouse any died before money ran out the remaining value of the paymentsin principal ony lump sum or in con tinued monthly payments in eluding interestwould go to designated beneficiary CRITICIZE INHERITANCE Opponents of the CAC proposal have criticized the concept of inheriting funds saying that RRSPs were not intended to help build up planowners estates Delaney dismisses such criticisms as irrelevant since beneficiaries woulgeéisay full taxes on the proc thus re ying the ederal treasury or the tax break given to planowners during their years of con tributing to RRSPs Annuities in several for ms would remain an option for RRSP owners at age 71 under Delaneys proposal ates Annuities he specu would mainly be attractive to those who were worried about outliving their life ex pectancy and thus seeing payments from their trust company or bank run out Annuities can be for the life of one person jjoint and last survivor running out only when both the lanowner and his spouse ve died or either straight or joint with period cer tain option guaranteeing continued payment for specified period maximum of 15 years under Canadian law with funds going to beneficiary if the planholder and his spouse if included in the annuity dies within that period LONGER PERIODS Since both joint and period certain options expose in surers to longer periods of liability for monthly payments such annuities cost more in proportion to the size of payments than straight life annuities Delaney would also retain the lumpsum method of cashing in an RRSP for those who dont mind paying the amount of tax involved The latest proposal ac tually falls short of the original suggestion from Delaney and the CAC to the federal government In brief year ago the group asked Ottawa to drop altogether the uirement that RRSPs be cas ed in at age71 Under the original proposal plans would cease cition Tom Delaney national spokesman for the Consumers Association of Canada on Registered Retirement Savings Plans says legislation governing the plans should be ex panded to allow planowners freer choice of options At present planowners must either buy life annuity of cash in the plan and pay tax on the accumulated amount in one year Examiner Photo to function as RRSPs at that age and future contributions would not be taxdeductible as they are prior to age 71 in addition withdrawals and in terest would be taxable as in come But lan owners would be able to save their money in the plans if they saw an advantage in doing so This proposal met little en thusiasm in Ottawa leading the CAC to the present com promise suggestion But Delaney says he still sees merit in the original idea RRSPs he says vary widely in return on in vestment some can even lose money due to poor per formance of stocks in ich the funds are invested If plan is doin badly when its owner reac es age 71 he cannot at present leave his money in and hope for an improvement he must take his moneywand his financial bath Thats hardly fair says Delaney Free traders and protectionists battle it out at Tokyo Round hicle for tariff reduction on broad scale Its philosophical basis is that the lowering of tar iffs and other obstacles to in ternational trade is the best means of spreading pros rity throughoutthe world espe ciall to socalled Third World or eveloping countries Just after the Tokyo Round was launched four years ago however the Yom Kippur War broke out and the Arabdomi nated international oil cartel quintupled the world price of crude oil as means of exerting pressure on Israel and on any country that dealt with Israel in any way MORE BARRIERS The shar rise in the cost of such vitaPcommodity had the inevitable resulta worldwide economic slowdown Just as inevitabl the reces sion produced amt er resulta renewal of protectionist forces in many countries All countries are enthusiastic about selling their products abroad Not so many are clam wheels of yesterday Last weeks Wheels of Yesteryear wasnt as easy as we thought it might be Each of the 27 entries knew it was Cadillac most knew it was 1956 Caddie But Paula McFarlane the seventh letter drawn was the first with the right model Sedan de Ville She wins $10 gift certificate from Brass and Glenn good only at Brass and Glenn 10 Dunlop St This weeks Wheels of Yesteryear puzzler is at the other end of the scale from the Cadillac if you know the year and the make and be careful of the make send your entry to Wheels of Yesteryear The Examiner Box 370 Barrie 1AM 4T6 oring to buy the products that foreigners want to sell to them West Germany and Ja thanks to astute merchan ising of Volkswagen Rabbits Pan asonic homeentertainment equipment and the likewill have combined surplus of more than $15 billion on their 1977 merchandise trade The United States on the other hand because of con sumers appetite for just such foreign products will probably have trade deficit in excess of $20 billion Canada has been runnin modest surplus in merchan ise trade for each of the past nine monthsalthough our deficit in services is about three times greater at an annual rate of nearly $75 billion FREER TRADE The Economic Council of Canada recommended more rapid trade liberalizationin report ublished in July 1975 reetrade polic is not only feasible for Cana but is the best guarantee of its na tional objectives The trouble of course is that national objectives arent necessarily the objectives of the various sectors that make up the nation Its one thing to recognize our shortcomings in productivity and international com petitiveness and to propose that we specialise in other things we might do such as hewing wood and drawing wa ter Its quite different thing from the viewpoint of Cana dian manufacturing business thats competing against im ports from lowwage countries while trying to maintain work force and the necessary plant and equipment The classic example the one most frequently cited year af ter yearis our textile in dustry After struggling against flood of cheap imports chiefly from the Orient for many years the industry obtained degree of protection when the Canadian government imposed voluntary uota restrictions on foreign othing entering Canada Overseas firms exporting to Canada however have tended to use their uotas entirely for higher pric more profitable productlines As result some low riced items of childrens wear or ex ample have virtually dis appeared from Canadian retai lers shelves As in so many other market situations its the consumer who eventually pays for protec tionism The price is not simply the tariff itselfsay 15 per cent of the world price of given prod uct Its more subtle prica domestic industry grown less efficient because it is too well protected against competition or world economy made less vigorous because of the ob stacles to trade Protectionists would argue that whatever the price it must be paidbecause reduc tion or removal of tariffs would probably spell the end of Cana dian manufacturing and put thousands of workers out of their jobs The Economic Council in its 1975 report suggested that the unem loyment rate would proba ly rise by no more than one percentage point under free trade and that the government could use certain techniques to prevent even that increase Free trade would perhaps wipe out some Canadian manu facturers But it could also give others an opening into say the US market that might be highly profitable The question however is largely academic because tar iffs wont be eliminated at the Tokyo Round of GATT negotia tions in Geneva Some increases in selected tariffs do seem likely though and its safe bet that the con sumer will end up having to dig deeper as result Millionsales mark reached by car firms By THE CANADIAN PRESS Canadas booming automobile industry has passed the onemillion mark in annual car sales for the first time in its history Figures on car sales in Sep tember released by the Big Four auto manufacturers in dicate the industry sold 1003000 cars in the 1977 model year which ended Sept 30 In the 1976 model year the in dustry came within 21000 cars of passing the onemiilion mark In the 1977 model year it sold 353755 trucks compared with 335595 in 1976 Some of the impetus came from Ford Motor Co of Canada Ltd which rebounded from disastrous 1976 when it was hit with rust problems and strike in the fourth quarter that af fected sales Fords car sales in the 1977 model year totalled 203991 an increase of 23 per cent over 1976 sales of 199390 cars Ford also sold 111409 trucks in the 1977 model year com pared with 112203 for the pre vious year and in this corner The insuranc indr The Consumers Associa tion of Canada proposal to revise Registered Retire ment Savings Plan legisla tion isnt very popular with the life insurance industry And industry spokesmen say the opposition isnt just matter ing to hang onto theannuity usiness Reg Lachanee chartered life underwriter who is public relations chairman for the SimcoeMuskoka Life Un derwriters Assocition says the issue is moral one The question have to ask is wh an RRSP contributor shou have special rivileges at retirement says retired employee of firm must take out his pension as life income with or without certain period ie payment for guaran teed period usually 10 or 15 years regardless of time of death An RRSP owner has gained tax advantage over the years Lachance says for the sole purpose of providing life income there is no reason he should gain any further tax break Just being able to cash in an RRSP for lump sum even with the heavy taxation such an ac tion would attract is privilege most pension par ticipants dont have he says In addition says Lachan ee the CACs proposed mon thly pa ent benefit option is ba idea for those who might outlive their statistical life expectancy and see their payments run out MOST IMPORTANT have found that the single most important finan eia matter to retired peoplie is to have an income he they cannot outlive says With the monthly benefit payment option you could outlive the income and then youre back on welfare orwhathayeyou Life annuity buyers can guard against the opposite sibility that proceeds rom an RRSP might buy only few months income in Reg Lachanee public relations chairman for the SimcoeMuskoka Life Underwriters Association says life annuities fulfil the purpose for which Registered Retirement Savings Plans were originated and there is no good reason to add options which dont apply to other forms of pension income Examiner Photo the event of early death Mb purchase of period certain option says Lacharr ce The vast bulk of his own annity business he says is in plans with riod certain clauses and extra cost is not great According to one set of figures Delaneys $25000 will buy 71yearold bachelor saw month on stra ht life annuity $254 mon with 10year certain clause Figures cited by Lachance are similar Also opposed to the CAC proposal is the Canadian Life Insurance Association Frank Speed CLIA ac tuary calculator of in surance risks and premiums also says life income is the purpose of an RRSP RRSPs were originally intended to be the nsion lan for the selfempfifyed says and even though the program has broadened its scope to other groups the provisions that apply to RR SPS should be Similar TO those applying to pension legislation Speed acknowled as that straight life annufiy buyer might get little return if he dies early but says this risk is balanced by the risk com panies take that buyer may outlive his life expectancy and run sizeable prdit a1 iaaanmity You couldnt have Infia thing as life annuity without risksharing ar rangement hesays Ottawa does the refereeing OTTAWA While the Con sumers Association of Canada and the life in surance industry trade arguments over Registered Retirement Savings Plan rules both sides are getting close look from the federal finance department =4 business notes task force has been set up to examine RRSP legisla tion along with the Canada Pension Plan tax incentives for private pensions and all other aspects of the govern ments retirement income policy The task force report says Homer and Huang meet coordinator Harve Lazar might be availabe to the cabinet around the end of the year Since cabinet documents are not public information the first RRSP owners are likely to hear of changesif anyin federal policywill be at budget time probablyin March Budgetary secrecy keeps Lazar from saying what changes his group will recommend but he says he doesn know yet anyway dont know where its goingtocomeout hesays Jack Homer left federal Industry trade and commerce minister gestures as he and Chinese Foreign Minister Huang Hua appear to be laughing together during their Thursday morning meeting in Ottawa Huang who left for Paris via Montreal Thursday evening also met with Prime Minister Trudeau and External Affairs Minister Don Jamleson during his threeday visit toCanada CP Photo Exports to US up 30 per cent OTTAWA CP Exports of motor vehicles and parts to the United States rose 30 per cent in the first six months this year to $5149 billion Statistics Canada reports Higher shipments of cars and trucks accounted for 56 per cent of the gain due mainly to an extraordinary rise in real expenditures on automotive products in the US during the first half of the year Shipments of cars and trucks rose by 225 perd cent respectively the informationgat sax Canadian imports from the US increased 245 per cent to $5745 billion the first half of 1977 over last years level An improvement in the surplus on the trade in vehicles especial trucks rtly offset by worsening in the deficit on parts and tires rought about small decline in the over all automotive deficit to $597 million in the first half of this year from $654 million in the same period last year Criticism praise for policy TORONTO CP Ontarios policy of seeking lower tariffs revealed at the federalprovincial finance ministers conference Wednesday in Ottawa has received criticism and praise Cam Davis president of the Ontario Chamber of Com merce said lower tariffs will benefit the consumer and help fight inflation All industries will have to be more competitive with similar industries in other countries and they will have to be competitive pricewise he said This would result in decreased costs which would be passed on to the con sumer cent and 37 ring agency ment decisions Women given Honda success TORONTO CP Women have made Honda oneofthe to selling car lines in Canada says Ross Robinson national sa es director of Canadian Honda Motor Ltd of Toronto Robinson said women account for 43 per cent of buyers of all cars sold by Honda and appear especially interested in the small Civic model It is small easy to handle with lot of window area and they must find it eas to park he said in an interview Sales to the end August for both the Civic and the A0 cord compact introduced last year totalled 37317 units surpassing the 29800 units sold in all of 1976 he said He said Honda took over the lead in the sale of imported cars in June of last year from To ota By this June Honda outsold a1 other makes of cars except the fullsized Chevrolet He said he expects that 50000 Civic and Accord models to be sold by the end of this year Ford cuts small car prices OAKVILLE Ont CP Ford Motor Co of Canada Ltd announced this week that suggested retail prices for some of its 1978model fourcylinder cars have been reduced by up to $275 or 67 per cent from comparablyequipped 1977 models company spokesman said the prices of Mercury Bob cats Ford Pintos and Ford Mustang US were reduced to compete more aggressively in the small car market and to encourage the purchase of small cars that use fuel efficient yThe companys least expensive model will be the Pinto Pony with sug tasted maximum retail price of $3455 and the Mercury cat special twodoor model with sug gested maximum retail price of $3483 23ml prices are $139 below the comparablyequipped 1977 The maximum price reduction of $275 applies to 1978 Bob cat and Pinto twoer and threedoor hatchback models The least expensive 1978 Mustang II will be the twoer model with suggested maximum retail price of $14131 which is $256 or six per cent below 1977 models Calls for more participation TORONTO CP The private sector should participate more directly in Canadas economic affairs after anti Erflation controls are removed the acting chairman of the eonomic Council of Canada says George Post said variety comultative groups rather than single tripartite system of business labor and government is needed to tackle the countrys interlocking problems For example one group might deal with energy matte one with regional isparities another with commercia polic and so on Post told an Empire Club meeting ese consultative groups might hear some resemblance to royal commissions although the membership should be lfirger and should in most cases include government peo ell Business preoccupied with post KINGSTON Ont CP Canadian business and govern ment have become so preoccupied with past economic ro blems they to be losing sight of future pportuniges vioepresi ent of Toronto Dominion Bank as Douglas Peters who is also the banks cf economist said businessmen especially should act now ratha than wait for the next worldwide investment boom to make invest