Supporters of the Registered Disability Savings Plan (RDSP) are praising new government changes to five of the plan’s key areas, saying the new rules will make the program easier to use and encourage more participation.

The changes deal with issues that relate to establishing plans, terminating and accessing plan savings as well as the administration of the RDSP program, issues that Jack Styan says have historically affected how many people use the savings plan.

“By increasing flexibility the [RDSP] becomes more attractive for a broader spectrum of people. If it is perceived as useful by more people, the uptake should increase,” says Styan, a former executive director of Planned Lifetime Advocacy Network (PLAN), a Vancouver-based non-profit group that played an instrumental role in lobbying for the creation of RDSPs.

Introduced by the Conservative government in 2008, the RDSP is the first savings plan of its kind in the world. It is designed to help disabled Canadians plan for the long-term care costs, with the possibility of the federal government matching individual contributions three-to-one, Styan explains. In addition, for people living on a low-income, the government will contribute $1,000 each year over a 20-year period.

“An RDSP…provide[s] greater savings incentives for people who have much greater financial needs and much less earning capacity on average than other Canadians,” says Styan.

Cindy with son Greg and husband Lou. They set up an RDSP for Greg in 2008.

Helping disabled Canadians save for the future

For Cindy Vizi, mother of an nineteen-year-old boy with Down syndrome, the plan relieves some of the stresses of having to save for the day when she and her husband Lou will no longer be around to support Greg.

Vizi thinks the plan is too good to be true. Disabled Canadians aren’t rushing to respond, says PLAN. “By January 2013, Canadians had opened a total of 65,457 RDSP accounts…”

Still, that’s only 11 per cent of the projected 600,000 Canadians eligible to open an RDSP.

“A lack of financial literacy and comfortability with the financial services industry for many people with disabilities, not to mention those without the capacity to manage their own financial affairs,” contributes to a lack of uptake, wrote Joel Crocker, director of future planning at PLAN.

“The majority of those 600,000 live on fixed incomes. They are thinking about how to survive financially for the next month, not about saving for 10 or more years down the road,” says Styan.

The slow response is also connected to an overall lack of knowledge about the plan, Crocker says. A recent Bank of Montreal survey reveals that only 10 per cent of disabled Canadians, or those with a disabled family member, are aware of the program and its benefits.

Moving towards a more user-friendly plan

The 2012 federal budget introduced a measure to allow the tax-free transfer of Registered Education Savings Plan investment income to an RDSP if the plans share a common beneficiary. “This is amazing. For a lot of [parents of kids with disabilities] you think your child will continue their education, but that doesn’t always become a reality,” says Vizi. This change prevents parents from losing a “big chunk of [their] money” mainly because they are not taxed right away on the transfer, says Crocker.

Another change means some family members can become temporary RDSP holders for adults who might not be able to enter into the contract themselves. A move that “really clarifies the rules [for potential plan holders] on who can help the individual…open an RDSP,” says Robert Armstrong, an executive with the Bank of Montreal. Under the old rules, a plan holder had to be the beneficiary or the beneficiary’s legal representative.

Joel Crocker and friend.

The federal government is making it somewhat easier to withdraw a small amount in times of financial need. In the future, for every $1 withdrawn, $3 of the grants or bonds paid in the previous decade must be repaid. The old rules required that all grants and bonds received in the prior decade be repaid if someone made a withdrawal prior to the ten years after the last government deposit.

“There is a lot of people with different and changing needs and it is a little extreme to say you can’t take out some money now if an emergency came up. For example, what if your life will be shorter? To be forced to give all that money back is a little bit punitive,” says Crocker. “Now there is not such an extreme penalty if you withdraw. It is a huge difference.”

The maximum annual limit a person can withdraw from their savings plan has also changed. Before, the government controlled how much you could take out annually if you had been contributing less to the plan than they had. Now, this amount you can withdraw annually has been raised.

“If you require expensive medical equipment and you are only allowed to take out a certain amount every year, and it doesn’t cover the costs, you are put in a challenging position,” says Crocker. “So now the new rule is that you can take out up to 10 per cent of the plan per year…which typically works out to be much higher than the previous formula.”

The final change increases the incentive for people with cyclical disabilities to encourage them to open a plan. Previously, if the plan holder temporarily did not qualify for the Disability Tax Credit (DTC), an RDSP would shut down and lose all government contributions, “which is tough on people who are in that situation,” says Crocker. After 2013, instead of shutting down, the account will become dormant until you qualify for the DTC again.


OTTAWA | March 8, 2013
By Marijke Large
Producer Nic Pollock