Catch-up contribution: A Policy tool to enhance retirement security for refugees in Canada

What is catch-up contribution?

In the U.S., Americans 50 or older are allowed to contribute significantly more to their retirement savings accounts. This is what is referred to as ‘catch-up contribution’. It accelerates savings later in an individual’s career, when they are likely to be making peak earnings.

A few weeks ago I wrote about the Refugee Retirement Savings Fund (RRSF). I proposed this specialized account for refugees 35+, who have a shorter RRSP (Registered Retirement Savings Plan) contribution room history in Canada.

The RRSF proposal is one remedy. It is especially suitable for refugees who have been in Canada for more than five years and/or who earn middle-high incomes.

In this article, I make the case for another potential remedy—an adaptation of the U.S. policy on ‘catch-up contribution’.

What I propose is TFSA (Tax Free Savings Account) and RRSP catch-contribution room for refugees who arrive in Canada at 35+. I focus on both accounts because low income earners are unlikely to benefit significantly from added RRSP room.

Catch-up contribution policy framework

A 2001 legislation—the Economic Growth and Tax Relief Reconciliation Act (EGTRRA)—signed into law by President Bush introduced ‘catch-up contribution’.

EGTRRA allows workers aged 50+ to contribute additional amounts to their 401(k), 403 (b), or 457 retirement savings plans beyond annual limits.

A 2006 legislation—the Pension Protection Act (PPA)—made the EGTRRA retirement provisions permanent, which also increased catch-up amounts.

Later in 2022 the Secure 2.0 Act set an even higher catch-up limit for Americans aged 60-63. It also indexed IRA (Individual Retirement Account) catch-up contribution to inflation.

Why catch-up contribution matters?

Several factors influence people’s ability to save for retirement early in their careers. These include family responsibilities, career disruption and transition, and financial obligations and/or setbacks. Inadequate financial education, economic conditions, and the lack of urgency before age 50 also play a role.

Creating a catch-up mechanism means as people earn more they have the capacity to save more on an accelerated basis.

One study found that the catch-up provision in the U.S. increased contributions in tax deferred retirement accounts by 18%.

Catch-up contribution allows people to make up for lost time when they are more financially stable. It offers older individuals a structured way to help close the retirement security gap.

A Canadian adaptation: Proposing catch-up contribution room for refugees in Canada

Refugees arriving in Canada at 35+ face structural disadvantages in retirement savings.

Data on refugee earnings is outdated. However, it is generally accepted that for the initial five years after arrival, the median income for refugees is low.

After five years, a significant number of refugees become middle-income earners.

But we would have missed years of RRSP and TFSA contribution room because of our age on arrival in Canada. As such, even with increased income later in life, TFSA or RRSP room is quickly maxed out.

Additionally, refugees who arrive at 35+ are structurally barred from accessing the maximum CPP (Canada Pension Plan) benefit, because we would not have resided in Canada for 39 years at retirement.

The same is true for OAS (Old Age Security) where 40-year residence is required to receive the maximum benefit in retirement.

This leads to a retirement security gap that conventional structures do not address effectively. But policy innovation can help refugees who arrive in Canada later in life close that gap.

Policy proposal overview

I am proposing that the Canadian government increases the TFSA and RRSP contribution room for refugees who arrive at 35+.

Who qualifies?

To qualify, refugees must file taxes annually. An opt-in mechanism should be created for refugees in their CRA (Canada Revenue Agency) account. And, to opt-in, individuals must upload proof that they were granted refugee status in Canada.

Recommended catch-up contribution room

A 30% catch up contribution room in the TFSA. In 2025, for example, this would increase total TFSA room from $7,000 to ~$9,000.
A 30% catch up contribution room in the RRSP. This would increase the contribution limit from 18% of previous year’s income to ~23%.

Why catch-up contribution for refugees matters

The longer refugees reside in Canada, the more likely it is that our incomes will grow.

Given the structural barriers that refugees 35+ face, catch-up contribution is an opportunity to enable meaningful retirement saving as our incomes expand.

This promotes equity and financial independence in retirement, despite our delayed economic integration.

It is possible for refugees who arrive in Canada at 35+ to build a robust retirement nest egg. But we must be given the flexibility and the opportunity to accelerate savings once we are financially stable.

Final thoughts

Catch-up contribution is not a hand-out, but a fair correction to structural inequities. Refugees who arrive in Canada later in life should not be consigned to poverty in retirement.

By adopting the catch-up contribution mechanism, the Government of Canada can match its humanitarian commitments with long-term economic justice.

Catch-up contribution can be a retirement lifeline for refugees.

And, it ensures that those of us who rebuild our lives here after displacement can retire with dignity, independence, and security.