The Differences Between a Group RRSP and an Individual RRSP – How to Pick the Right Investment for Your Needs
Enrolling in a Group RRSP is an excellent way to add to your current benefit plan, allowing you the ability to retain key employees and entice new staff to join your team. A Group RRSP is one of the most common methods Canadians use to save away for their retirement.
A Group RRSP is very similar to its individual counterpart in most ways, but there are a few key differences between the two retirement savings tools. A Group RRSP is administered by an employer as part of a group benefits package. Employees that are part of a Group RRSP have the convenience of automatically contributing to their plan with automatic deductions from their paycheque. Breaking up RRSP contributions into smaller payments made throughout the course of the year is a much more affordable option for many Canadians.
Some of the key advantages of a Group RRSP Saving Plan include:
- Help your employees build a stronger RRSP benefit by matching their contribution at a level decided by your staff.
- Your employees are in control of their contribution amounts. They can invest as much or as little as they wish. This makes retirement saving a realistic and affordable goal for your team.
- Employees have the option of investment money under their spouse’s name to save on household income tax payment.
- There are various RRSP investment options available to your employees. Your staff will have the advantage of designing a retirement savings plan that suits their needs and budget while taking advantage of the savings of sharing administration costs with fellow employees.
- Employees can manage and monitor their RRSP account if they wish with various levels of control.
Working with an experienced Group RRSP advisor is the best way to design a benefit plan that works for your firm. They will walk you and your team through the entire process, bring to light a lot of information that can save your company a lot of time, energy and money. At Tanner Financial, we have trusted relationships with some of Canada’s most reputable insurance companies. We understand the strengths and specialties of each of these firms to find the perfect Group RRSP Savings Plan solution for your company.
An employee will establish their contribution level as either a fixed dollar amount or as a percentage deducted from their paycheque. Many employers will match the contributions made by their employees. Although it’s not required for employers to match the contributions, it can be an excellent way to really enhance the Group RRSP benefit and add a lot more value to it. In fact, some employers will also enhance it with a DPSP (Deferred Profit Sharing Plan) which is usually a specific amount or percentage the firm provides to the employee.
By contributing to your employees RRSP contributions you are investing in their future and will help them have a successful retirement savings plan. This creates a sense of loyalty among your staff and will make them feel invested in the growth of your company for the long term.
Currently, Canadian workers are able to contribute to a maximum of 18 percent of his or her previous year’s income. Both individual and group RRSP plans have the same contribution limit.
Tax savings can be another reason why a Group RRSP is an attractive investment option. When money is invested into an RRSP the person will receive an eligible tax deduction for the amount they’ve invested. This basket of investments is tax-sheltered until withdrawn. Once that occurs, either voluntarily or under RRIF rules (the government has a formula that requires some withdrawals as a minimum starting in your 71st year). This is an important factor that the investor must take into account when deciding to withdraw their RRSP, it’s worthwhile to look into the tax implications. The tax savings if done monthly with payroll are immediate whereas is done personally you realize them when completing your annual taxes.
The investment options of an RRSP will be based on the offering by the financial institution administering the Group RRSP. Usually, an RRSP will be administered by a bank, a mutual fund company, or by an insurance company. A sound Group RRSP will be administered by a company with a strong track record and will provide flexibility for plan members. Most providers offer a selection varying from funds (either mutual or segregated) to target retirement date or asset allocation options designed to meet your risk and your target retirement age.
Another advantage of investing in a Group RRSP as opposed to an individual plan is paying less for plan administration fees. The fees paid towards maintaining a Group RRSP are shared among other plan members, thus decreasing the amount an individual investor pays. The more money invested in the Group RRSP, the less an individual needs to pay in administration fees. This is an important factor to consider, as these fees will add up over time.
Overall, a Group RRSP is simple to administer. There are not a lot of regulations to navigate through and the benefit’s rules are straightforward. It’s easy to add or remove employees from the RRSP when needed. Employees leaving the plan can simply move their Group RRSP contributions to an individual plan; they can also convert the funds into cash (it will be taxed as income for the year it’s received).
A well-designed Group RRSP or Pension Plan can act as an excellent employee retention tool and can give your company a competitive advantage when it comes to attracting new and talented staff. Our team of experienced Group RRSP advisors have been helping Toronto, North York , The GTA and area businesses find the right plan that suits their employee’s needs and budgets since 1999. Learn more about enrolling in a Group RRSP by contacting us today.