Canada’s disability savings plan market remains largely untapped

Social barriers, low awareness and administrative burden hindering public acceptance of RDSPs

By Richard Chu

The registered disability savings plan (RDSP) was initially heralded as one of the most significant financial products to help lift people with disabilities in Canada out of poverty.

But nearly two-and-a-half years since it was created and despite thousands of dollars available to beneficiaries from the federal government, the account’s acceptance has been slower than expected.

The RDSP provides government grants and tax-sheltered investment growth for people eligible for the federal disability tax credit (DTC).

Since RDSPs became available in December 2008, roughly 40,000 have been opened across the country. Nearly two-thirds, or about 23,000, were opened in the first nine months of 2009 (see “B.C. spawns world’s first savings plan for people with disabilities” – issue 1036; September 1-7, 2009).

However, according to Human Resources and Skills Development Canada data, that total as of November 2010 had increased by only 16,000.

To date it remains less than 10% of the estimated 600,000 RDSP-eligible people in the country, who combined could invest an estimated $80 billion in the savings plan.

The RDSP’s slow acceptance is partially due to a lack of awareness. A BMO Bank of Montreal survey commissioned last December found that 44% of Canadians with a disability, or those with a family member with a disability, have never heard of the savings plan.

Al Etmanski, president of Burnaby-headquartered Planned Lifetime Advocacy Network (PLAN) and one of the RDSP’s original proponents, said much of the promotion across Canada has been via word of mouth or in-person workshops with disability-related organizations.

The RDSP Resource Centre’s Jack Styan, another original RDSP advocate, noted that financial institutions have done relatively little mainstream RDSP advertising, especially compared with the marketing that’s done for other registered savings plans like RRSPs, TFSAs or RESPs.

Styan said that’s in part because banks still see it as a niche product for a specialized market.

In addition, applying for the federal disability tax credit is onerous, especially for people whose disability is not obvious. It can take anywhere from three to six months for the Canada Revenue Agency (CRA) to review even the most straightforward DTC application. Appealing a CRA decision can take another three months.

While people can apply for an RDSP as they wait for a DTC application review, Styan said misunderstandings about RDSPs have further deterred people from opening an account.

“The fact that it’s a registered plan makes people think it’s similar to an RRSP, which is a misconception.”

One of the most common RDSP misunderstandings is that families of people with disabilities, especially those with low income, need to put money into an RDSP to take advantage its benefits. But the reality is that anyone with less than $23,855 in annual income will automatically receive a $1,000 bond in his or her RDSP for up to 20 years. Those with an income of between $23,855 and $40,970 receive a proportional amount of the bond.

“If all it took was to go down to our bank and open a plan for the federal government to begin depositing cheques,” Styan said, “how many of us would turn that down?”

But many low-income families appear to be doing just that.

Andria Teather, executive director of the Giving in Action Society at the Vancouver Foundation, said households on provincial income assistance have been eligible to receive a $150 starter grant on their first $25 RDSP contribution since October 2009 as part of the foundation’s Endowment 150 program. However, by the end of 2010, only 2,400 people had received the grant out of 30,000 eligible for it.

“Our original gift of $4.5 million from the provincial government was based on the scenario where everyone on low-income assistance who is registered for the disability tax credit would open an RDSP,” said Teather. “Clearly, that hasn’t happened.”

Teather added that various basic barriers for those on income assistance are likely hindering their ability to open an RDSP.

“Not only do they have a relative at home with a disability, but they may be single-parent families, unemployed, be more transient. These families are also challenged by the application process.”

While organizations are figuring out how to reach those who could benefit most from the disability savings plan, more mainstream awareness could also dispel widespread belief that the RDSP is simply too good to be true.

The BMO survey found that 44% of families with people with disabilities thought there must be some catch involved with opening an RDSP.

“That might seem strange to an outsider,” said Etmanski, “but up until the advent of the RDSP, people who had disabilities, their families, their providers and supports were all in the mindset of welfare, of dependency.

“There are a lot of people with disabilities who never dared to dream of anything other than disability benefits, which is essentially welfare. This is an attitudinal shift that we want to see change. We don’t think disability should be treated as a welfare issue.”

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