Using RDSP to its full potential

Currently, almost 27% of eligible Quebecers have an RDSP, compared to 30% to 40% in the other provinces. Quebec also has one of the lowest RDSP contribution rates in Canada. The average value of assets in RDSPs is lower there. It sits at $17,360 compared to $22,250 nationally.

“We can conclude that, in addition to serving fewer Quebecers and covering fewer potentially qualified persons, the holders are not optimizing the financial product and obtaining less benefits than in other provinces in Canada”, says Jean-Philippe Brosseau, expert from the firm Raymond Chabot Grant Thornton (RCGT) who conducted the study.

Appetite for personal advice

Financial institutions have an important role to play in turning the tide. In this regard, the study reveals that the type of institution that issues the RDSP affects the quality of the advice that clients receive.

Desjardins is the largest provider and issuer in Quebec, with almost a third of RDSP holders surveyed by Finautonome, followed by RBC (16%) and BMO (12%). About 14% of beneficiaries said they do business with Mackenzie, 12% have retained the companies’ services and 7% have their plan with an independent adviser.

Customers who deal with a bank or credit union say they are less satisfied than those who deal with a specialist firm or independent adviser.

“Access to RDSPs in bank branches is rare and difficult due to advisers’ lack of familiarity with the plan. Several institutions offer the plan over the phone or online, which represents an accessibility issue for some people,” the report said.

In addition, “access to a few riskier products is limited in some institutions, reducing access to high returns and the ability to accumulate larger assets in RDSP”, the analysts add.

Lack of access to knowledgeable advisers to answer questions and provide investment advice is the main reason for the dissatisfaction of many RDSP holders, the report notes.

“I can’t get hold of an adviser on the phone who can answer my questions”, “The investment types don’t suit me.” I have to call to make my investments because my branch advisor can’t,” said one respondent about his financial institution. “Accompaniment is not offered. There is no way to understand the best decisions to invest your money wisely”, reports another.

Despite the appetite for personal advice, few people with disabilities have the level of financial knowledge or resources to seek it, the study finds.

Complicated procedures

In addition to access to relevant advice, several barriers limit access to the plan. Most of the 250 or so respondents (beneficiaries and family) are unaware of the benefits of RDSP. Some do not have enough funds to open a plan. Others are limited by their disabilities. Many fear that their social benefits will be cut when they withdraw funds from the RDSP.

The requirement to first obtain Disability Tax Credit (DTC) to open an RDSP represents another barrier to entry, according to RCGT analysts. The complicated procedures as well as the difficulty in finding accredited professionals to issue the certificate necessary to obtain the DTC are cited as the biggest obstacles by the beneficiaries.

These obstacles add to the already complex steps of subscribing to an RDSP. The result: It can take nearly six months from someone hearing about the plan to opening it, the study says, longer than it typically takes to open a Registered Education Savings Plan (RESP) or a Registered Tax-Free Account (TFSA), for example.

Simplify withdrawal mechanisms

The study concludes that simplifying the plan could give more qualified customers access to it. In particular, she suggests considering gateways to RDSP other than DTC, and encourages financial institutions to further promote the plan and plan awareness efforts for each step of the process.

We would also benefit from simplifying the withdrawal mechanisms, reducing the penalties for early withdrawals and taking inspiration from the RESP for the formulas for grant amounts and payouts.

The report also recommends increasing or even removing the annual withdrawal limits for Disability Payments (DAPs) and Lifetime Disability Assistance Payments (LDAPs) to prevent the funds accumulated in the plan from being subject to a high tax rate at the time for the succession.

The stakes are high as the number of people unable to work is expected to increase significantly over the next few years in Quebec due to population aging. Easier access to the RDSP could enable a greater number of seniors to benefit from additional sources of income to secure their retirement.

$223 million

In 2017, Canadians contributed $223 million (M$) to their RDSPs, for a total of $1.2 billion (B$) accumulated in the plan.

Source: Employment and Social Development Canada, RCGT analysis

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