Group RRSPs

Group RRSPs are simply a Registered Retirement Savings Plan where contributions are made on a regular basis by payroll or source deductions at a place of employment. The main difference from a self-directed RRSP and great advantage of participating in a group is contributions are made using before tax dollars; more on that shortly. Not all employers offer group RRSPs but this is a “perk” rapidly gaining in momentum. Unlike costly benefits packages, group administered Registered Retirement Savings Plans are an added service to employees that cost the employer nothing more than a minor bookkeeping entry to offer. All the employer has to do is make the deduction and submit it to the chosen independent investment manager/administrator who deposits the amount into the individual account and tracks deposit accumulations. With some group plans, the employer may enhance the incentive to participate in the group by making the plan an actual benefit. It could be the employer will offer to contribute 5 or 10 cents to the employees fund for each dollar the employee contributes. This can be a great bonus because it is like earning instant interest of 5% or 10% on your investment. It is difficult to understand anyone not taking part in an RRSP offered in this situation.


Apart from the wonderful possibility of employers making matching contributions, the tax advantage of source deducted deposits to your RRSP fund are worthy of closer analysis. For years now, the norm had it that Canadians made a mad rush to their financial institution or investment counselor before contribution deadline to make their yearly lump sum payment with money they had saved or money they could borrow. There are several problems with this type procedure.


Before tax versus after tax dollars. All RRSP contributions reduce the income tax you pay but, only source contributions offer immediate tax relief. Suppose you are in a 40% tax bracket and decide to participate in your employer administered fund with a $250 contribution per pay period. The amount of tax deducted from your pay by the employer is calculated after the group RRSP contribution is deducted from taxable income. Your paycheck will only be reduced by $150 because your taxable income is reduced by the amount of your contribution. That is immediate tax relief!


Let us keep working with that $250 contribution to see what else can happen. Your $250 (which only cost you $150 out of pocket) goes to work immediately, earning tax sheltered income for your future. The contributions you made at the beginning of the year will have made an impact on your pool of assets a full year ahead of someone making a similar contribution in the traditional lump sum rush to the bank. And, each of those contributions will have had more time to make even greater returns by celebrating the magic of compounding each pay period until retirement.

Other advantages of group RRSPs.

Unlike many bank GICs or mutual funds, some Group RRSPs require only a minimum contribution of $25 per month.


A group plan is a “painless” disciplined way to invest because your money is contributed regularly without yielding to the temptation of frivolous spending elsewhere.


Contributions made on a regular regimented basis benefit from the proven dividends of dollar cost averaging.


Most plans will allow contributions on behalf of a spouse, so if income levels between spouses differ significantly, the higher earner should make the RRSP contributions in order to get the biggest tax break.


An RRSP account, whether in a group or on your own, is your own account so at termination or retirement, you have the flexibility of immediate vesting with no locking-in rules.


There are no fees charged for moving assets from one investment to another.


Group RRSPs offer you investments from a variety of top managers. Your investments will be able to benefit from the advantages of a portfolio diversification you might not otherwise be able to achieve in a self directed RRSP. There is the added bonus that fund management fees are usually much lower than what you would pay yourself.