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Government Wonders Why RDSP is Underutilized

April 14, 2014

Six years ago, the government launched the Registered Disability Savings Plan (RDSP) as a long-term savings option for people with disabilities. Today, only 15 per cent, or 12,000 of 500,000 people with disabilities have started their RDSP.

According to Lisa Lucio, CFP at MB Financial Services, “RDSPs are an amazing savings vehicle for those individuals with disabilities who need savings to sustain them through the retirement years and who may not have the income to contribute heavily toward retirement. It allows the individual and their family access to choices regarding their quality of life. The money that the government contributes toward grants for RDSPs is superior to many other investments and is no-risk. Canada is a leader in this type of plan.”

Issued this month is a Senate report outlining why more people aren’t taking advantage of the option, but more on this later. First, some facts about RDSP.

Facts About RDSP states that those who are eligible for the Disability Tax Credit are also eligible for RDSP.
• Anyone can contribute toward a person’s RDSP.
• Contributions can be made annually until the beneficiary turns 60.
• Contributions are matched by the government until an individual turns 49.
• The Federal RDSP Fact Sheet states that in addition to the money that you save, or that your family and friends save on your behalf, the government of Canada will contribute the following:
o Match grants of up to $3,500 per year and up to $70,000 in a lifetime.
o Offer bonds up to $1,000 per year and up to a $20,000 in a lifetime.
• RDSP funds do not impact other federal benefits such as the Canada Child Tax Benefit, the Goods and Services Tax credit, Old Age Security or Employment Insurance.

The Senate Report titled, “The Registered Disability Savings Plan Program: Why Isn’t it Helping More People?” considers several reasons why only 15 per cent of Canadians with disabilities have an RDSP. Here are some of the points they consider:

• Some disabled individuals, particularly those with mental disabilities who are estranged from their families have trouble appointing a person to be a joint plan-holder.
• A common solution [instead of different procedures across provinces] may not capture all of the disabled adults who do not have contractual capacity.
• If a common solution and form are introduced, who evaluates the completed form and what does the evaluation entail? What occurs if a lawyer is required?
• Training should be required for financial institution staff members to make sure that there is absolute clarity surrounding RDSP paperwork. What regulatory body will assure that those who do not have contractual capacity are acting of their own accord?
• The plan is complex, but if a simpler method for appointing a representative were to be adopted, fewer safeguards would be in place. Disabled individuals could be at a higher risk of abuse by those who would act as a plan holder.
• RDSP has not been fully integrated into federal and provincial regulations (e.g. British Columbia’s Representation Agreement Act).
• Some terms like ‘qualified family member’ are too unclear to reduce the risk of potential exploitation.
• There is a 10-year waiting period to withdraw funds. This decreases the usefulness of a RDSP if the individual has a reduced life expectancy or is already close to the age of 60.
• The intent of the RDSP program is to save for a disabled individual’s later years, reducing the 10-year waiting period could potentially obstruct the intent of the program.

Senate Recommendations

After reviewing these points, here is what Senate recommends:

• Amend the Income Tax Act to make the application process uniform across Canada.
• Create a specific RDSP form to make the application process the same across Canada.
• Shorten waiting period to withdraw funds.

While the Senate report outlines some recommendations, additional measures should be considered. For instance, make RDSP funds tax-deductible for a set period of time. Be sure that potential applicants know that RDSPs do not impact other income streams (such as Canada Child Tax Benefit, the Goods and Services Tax credit, Old Age Security or Employment Insurance). In addition, see that the language on forms and from financial representatives is very clear. And most importantly, provide diversity and inclusiveness training at financial institutions. RDSP has the best chance of thriving when adequate support centers are established.

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