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Registered Disability Savings Plan

The Problem

Due to improvements in life expectancy for people living with a disability, many are now outliving their parents and close relatives. While this is a welcome change, it presents a new problem as it pertains to saving for health related costs into the future. Strict benefit guidelines prevent them from building financial assets that will allow for independence in their later life.

The Innovation

The Registered Disability Savings Plan (RDSP) is a powerful savings tool similar to a registered education savings plan, but designed specifically for people living with a disability. The Plan allows those living with a disability financial security well into older age avoiding the poverty trap and enabling independence.

The RDSP allows anyone eligible for the Disability Tax Credit to invest up to $200,000 in savings tax-free until withdrawal, and to spend the money in whatever way will benefit them most. Family members and friends can contribute to someone’s RDSP, and help plan for that person’s long-term financial security. The federal government matches contributions through Canada Disability Savings Grants and Bonds. The Bonds – available without contributions – are especially valuable for people with limited financial means.

Planned Lifetime Advocacy Network (PLAN) proposed, researched and campaigned for the RDSP. PLAN is a non-profit social enterprise established in 1989 by and for families committed to future planning and securing a good life for their relative with a disability.. Since it was implemented in December 2008, PLAN has continued to track, advise, promote and recommend changes to the RDSP.

The RDSP directly addresses poverty. It enables people to accumulate financial assets rather than be dependent on government benefits. It provides them with greater choice and control over their lives. In order to accommodate the RDSP as an asset, most provincial and territorial governments have waived their asset limits allowing people to receive government benefits, and they have eliminated claw-back on RDSP expenditures. Further, there are no restrictions on what the funds can be spent on.

The RDSP helps hundreds of thousands of disproportionately poor Canadians living with a disability to lift themselves out of poverty, overcome isolation, and participate more fully in their communities.
Although Canada’s RDSP – now available in every province and territory across the country – is the first of its kind, its implementation is attracting great interest around the world. In the US, two bills have been introduced to assist people with disabilities in similar ways, but these have not yet passed.

Barriers to Development

It took PLAN eight years to develop and gain legislative approval for its RDSP proposal. During that time, PLAN members mobilized families from their base in Vancouver and consulted with financial institutions, politicians and government bureaucrats to discuss and refine their proposal. Several elections interrupted the discussions requiring PLAN to brief and persuade new people.

Provincial governments had to adapt their laws to accommodate and support the initiative. Overcoming the welfare mindset of the provinces and convincing them to exempt RDSPs as an asset and eliminate claw back policies was one of the biggest challenges.

(Claw-back refers to a percentage of money, usually for taxation, that is taken from the total allotment of financial benefit.)

Impact By The Numbers

Total deposits to date: More than $2 billion

107,027 RDSP’s have been taken up since Dec 2008

The Big 5 Canadian banks offer the RDSP

Contributions from Families: $728.2 million

Contributions from Government Grants: $997 million

Contributions from Government Bonds $430.5 million

Note: Numbers accurate to June 2015

How the RDSP Works

While every scenario is different, the following illustrates how the RDSP can be applied:

1. A family registers their son, Josh with an RDSP
2. Josh receives disability benefits and has an income of less than $24,183
3. Each month, Josh’s parents are putting $125 in Josh’s RDSP for a total of $1500 each year
4. As the RDSP is based on Josh’s income, he will receive both the Grant and Bond
5. The Canada Disability Savings Grant will contribute $3500
6. The Canada Disability Savings Bond will contribute $1000
7. Ted decides to place the funds in a conservative fund for stable growth
8. When Josh is 54 years old, his father plans to give his inheritance early and make a one time gift into the RDSP of $55,000. This means there is more personal contribution in the RDSP than government contribution, and therefore more flexibility for Josh when withdrawing funds.
9. With a return of 5.5% annually, Josh will have $432,000 by the time he starts withdrawals at age 55.
10. There will be no claw back on the funds.
11. This means an additional $15,000 annually to help Josh meet his medical needs and leave his parents with the peace of mind that Josh will be cared for.

All calculations are unique to the particular person’s situation. For an accurate self-assessment visit the RDSP website and use the RDSP calculator: http://rdsp.com/calculator

New Challenges

Ongoing barriers include:

Awareness: Ensuring that all people eligible for the RDSP become aware of the tool, and have the financial literacy to understand how it works and how they can use it

Getting funds to people with low income so they become eligible for more than just the Bond

Legislation: Changing provincial guardianship legislation so that individuals can have an RDSP without being declared incompetent

Welfare Reform: Extending the crack in dysfunctional welfare systems to eliminate all claw-backs on earned or un-earned income

Deficit: Shifting away from an income support framework to an asset accumulation one, now recognized around the world as the most effective anti-poverty strategy

Inflexible Rules: Adapting the RDSP to enable people with a disability whose condition is terminal to withdraw funds sooner

Eligibility: Making the RDSP available for folks with a genetic condition that will lead to a disability that has not yet manifested itself

The RDSP, as a savings tool, is self-sustaining, supported by the investments that Canadians themselves make. It is believed that the private monies that become available through the RDSP to support the financial security of people living with disabilities will encourage the federal government to maintain its support of the initiative. All Canadian banks now offer it as a product not only because they see it as an important social responsibility, but because they recognize there is a ‘disability market’ and the RDSP represents a doorway to that market.

Download a PDF version of the RDSP Profile.

A comprehensive case study of the RDSP was produced by SiG@Waterloo and is available from their website.

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