According to Stats Canada, almost half of us have no savings! An RBC RRSP survey found that 79% of us that have not yet retired do not have a retirement plan. For those of us who do have a retirement plan, 59% are behind in saving for retirement and 33% are just trying to keep their heads above water – never mind putting anything away for retirement!
Due to the alarming statistics above, any company offering a retirement plan will be providing a HUGE benefit for its employees.
The two types of group retirement products are a Registered Pension Plan and a Registered Retirement Savings Plan. Companies can choose between these two plans, or set up both.
A Registered Pension Plan (RPP) consists of employer and employee contributions accumulating on a tax deferred basis. The two types of RPPs are a Defined Benefit plan which provides a specified pension at retirement based on a preset formula and a money purchase or defined contribution plan which provides a pension based on the total accumulation of contributions and investment income at retirement.
RRSPs also provide a tax sheltered vehicle for contributions and interest or investment income to accumulate. Unlike RPPs, employer contributions are optional. However, any employer contributions are deductible as a salaried expense and are recorded as additional earnings on T4s. Upon retirement, the plan member has the option to convert to cash (taxable) or transfer to a Registered Retirement Income Fund (RRIF) which pays out a specific amount at frequent intervals, with only the amount withdrawn being taxable.
While RRSPs are available to individuals, there are several advantages to a group RRSP, such as: lower investment management fees, lower minimum contribution levels, and immediate tax savings as the employer deducts RRSP contribution off of an employee’s gross earnings (before income tax is taken off). Group RRSPs that are set up with an insurance carrier have the added advantage of being creditor proof and avoiding probate fees, as long as a beneficiary has been assigned.
For self employed or small business owners with the resources, an Individual Pension Plan (IPP) is available. An (IPP) is a defined benefit plan, usually with only one member. A spouse may be added to the plan if he/she is employed by the same or related company. Some of the advantages of an IPP are: employer contributions and expenses are tax deductible; contributions may be 25% – 70% higher than maximum RRSP contributions; member may be able to contribute at least $1,000/year into an RRSP; assets may be creditor-proof; and substantial lump sum contributions with respect to past service are possible, in most cases.