RESPs need an overhaul

By Andrew Rickard | August 08 2016 09:32AM

The Investment Funds Institute of Canada (IFIC) is concerned that the legislation governing Registered Education Savings Plans (RESPs) is so outdated and restrictive that it may discourage some Canadians from opening accounts.

In its recent submission to the federal government's pre-budget consultations, IFIC suggests that more could be done to encourage Canadians to save for their children's education. One concern is that many people are unaware of the fact that Canada Education Savings Grants (CESG) and Canada Learning Bonds are available, or even that RESPs exist.

Awareness Campaign

"We recommend the federal government budget include funding for a joint awareness campaign with common messaging and materials produced by the federal government that can be distributed through federal and provincial channels as well as providers, including advisors," reads IFIC's submission.

The industry association also believes the government should update "outdated rules" to make education savings plans more appealing. Among other things, IFIC argues that the rule which limits CESG payments for 16 and 17 year olds should be eliminated because it "unfairly penalizes those who were unaware of the program or unable to participate due to financial circumstances", and because it makes things difficult for those who immigrate to the country with teenagers. "Any child under the age of 18 should be eligible for incentives," says IFIC.

The yearly maximums for CESGs should also be eliminated because the current annual limit punishes families who were unable to save earlier in their children’s lives. "Families should be able to contribute up to the lifetime limit at any time before the child turns 18 and receive fully matched Canada Education Savings Grants," reads the brief signed by IFIC president and CEO Paul Bourque.

Update Contribution Limits

The submission goes on to point out that the RESP contribution limit and CESG limit have not changed since their inception in 1998, but that average tuition fees in Canada increased from $1,464 in 1990-91 to $6,348 in 2012-13.

"If the trend of unchanged grant amounts and continually increasing educational expenses continues, average Canadians will be discouraged from investing in higher education as the amounts they can save in their RESPs will be dwarfed by the educational expenses their children will face," concludes IFIC. "The Canada Education Savings Grant lifetime grant maximum should be increased to $9000, and the $500 annual limit on the matching Canada Education Savings Grant should be removed, with a mechanism for regular ongoing review and adjustments for inflation and tuition increases."

These are just some of IFIC's recommendations; the complete submission is available on the organisation's web site.

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