Canada's disability savings fund called a 'fiasco'
Fewer than 1 in 6 of those eligible sign up for 'onerous' accounts
For years, Frank Allen — founder and CEO of the Cerebral Palsy Support Foundation of Canada — heard horror stories about the frustrations of setting up a registered savings plan specially designed for those with severe disabilities.
But it wasn't until the financial planner and owner of three companies tried to set up an account for his eight-year-old grandson, Evan Pennington, that he came to understand what a "fiasco" the registered disability savings plan (RDSP) was, he says.
Allen's three-month journey through the system began on Feb. 14 with a trip to a TD Bank branch in Whitby, Ont., in hopes of setting up a plan for his wheelchair-bound grandson. Evan suffers from severe spastic quadriplegia cerebral palsy.
"The process is flawed from the beginning," said Allen, who lives in Oshawa with his daughter and his grandson. "When we went to the local branch … the gal there really had no idea what an RDSP was."
The RDSP, introduced nearly five years ago, is less known than its more popular cousins, the RRSP (registered retirement savings plan) and RESP (registered education savings plan), all of which allow income inside the plans to grow on a tax-sheltered basis until funds are withdrawn.
Under the disability savings plan, contributions are bolstered by federal grants and savings bonds for up to $4,500 a year, for a lifetime total of $90,000, depending on income.
Allen said he ended up walking the TD Bank employee through all the paperwork on how to set up a self-directed RDSP, reading it with her line by line. But that lack of knowledge was just the tip of the iceberg.
'Maze of issues'
"A lot of people at the branches, they don't know how to deal with someone with severe challenges," said Allen. "That makes it hard. How the whole process evolves makes it hard ... It's a maze of issues."
Finance Minister Jim Flaherty announced the start of the RDSP program in December 2008 with much fanfare. At a press conference he touted the unique plan as a global first.
"We are leading the world in this initiative, and I expect it will be copied in many places around the world," Flaherty said.
However, five years later, Human Resources and Skills Development Canada says that while some countries have sought information about the program at international meetings, such as at the UN and the Paris-based Organization for Economic Co-operation and Development, to the "best of our knowledge, no other country has started a similar program."
Today, all of Canada's major financial institutions offer RDSPs, but the road to offering the plan has not been smooth.
"There have been people who have been caught up in paperwork and bureaucracy," said Joel Crocker, director of planning at Planned Lifetime Advocacy Network, a Vancouver-based non-profit that lobbied for the creation of RDSPs. "It's been a bit of a nightmare."
RDSP uptake low
Despite Ottawa providing a grant of up to $3,500 a year — plus a bond of up to $1,000 a year for lower-income Canadians who don't even contribute that year — uptake remains low.
About 14 per cent of Canadians with severe disabilities — 68,833 in total — are now signed up for an RDSP. That's an increase from the four per cent who signed up in the first year, but it is still only a small portion of the estimated 500,000 who are eligible.
"I thank Jim Flaherty for implementing this," said Allen. "But the problem is there is a pot of money waiting to help those with challenges plan for their final years, their retirements. A lot of people with challenges live just as long as you and I hopefully will. They need the money."
He says he finds himself wondering if the government is trying to make the sign-up process confusing just so it won't have to pay out all that money.
RDSPs by year
|Year||Number of accounts opened|
Source: Human Resources and Skills Development Canada. *Figure accurate as of mid-May.
As of March 31, the federal government contributed $727 million in grants and bonds to RDSPs in the past five years. If all the estimated 500,000 beneficiaries had signed up, however, that would be a multi-billion dollar figure.
Crocker notes that the federal government has been responsive to concerns and questions about the program. The program underwent a review and about a dozen changes have been instituted or will be by early 2014, he says.
Among the changes are allowing RESPs to rollover into RDSPs, increasing the annual withdrawal maximum and allowing for RDSPs to remain dormant while a person's disability tax credit, a requirement for obtaining the plan, is under review or temporarily unapproved.
Financial institutions have also been supportive of the long-term savings plan, despite how time-consuming the applications can be, said Crocker.
"It's probably one of the most onerous offerings that they would have or products that they have to sell with the least amount of returns for them," says Crocker. "It takes more management, there are more things to deal with."
More uptake needed
Allen said that despite more than three months of back-and-forth with the bank, he decided to continue the RDSP process with TD in part because they are the only bank offering a self-directed plan, but also because bank officials said they were making changes on how they handle the process.
TD Bank would not comment to CBC about any changes, citing client privacy concerns. But it issued a statement last week saying it investigates "customer concerns as quickly and effectively as possible."
In Allen's case, he learned late last week that his grandson's RDSP has been finalized. It's a relief for the grandfather to know Evan will have enough money to be taken care of later in life.
The cost to the families of those with disabilities — many of whom are often low income — can reach about $80,000 a year in care alone, says Allen.
"People with challenges ... they are like anybody else. You have to plan for your future. When the caregiver is gone, who is going to care?"
Allen hopes the RDSP might even earn the Grade 2 student a $1-million nest egg by the time he retires.
And he advises others with disabilities: "It's something that everyone has to do. It's that important and so many people are missing the boat."