Due to improvements in life expectancy for people living with a disability, many are now outliving their parents and close relatives. While this is a welcome change, it presents a new problem as it pertains to saving for health related costs into the future. Strict benefit guidelines prevent them from building financial assets that will allow for independence in their later life.
The Registered Disability Savings Plan (RDSP) is a powerful savings tool similar to a registered education savings plan, but designed specifically for people living with a disability. The Plan allows those living with a disability financial security well into older age avoiding the poverty trap and enabling independence.
The RDSP allows anyone eligible for the Disability Tax Credit to invest up to $200,000 in savings tax-free until withdrawal, and to spend the money in whatever way will benefit them most. Family members and friends can contribute to someone’s RDSP, and help plan for that person’s long-term financial security. The federal government matches contributions through Canada Disability Savings Grants and Bonds. The Bonds – available without contributions – are especially valuable for people with limited financial means.
Planned Lifetime Advocacy Network (PLAN) proposed, researched and campaigned for the RDSP. PLAN is a non-profit social enterprise established in 1989 by and for families committed to future planning and securing a good life for their relative with a disability.. Since it was implemented in December 2008, PLAN has continued to track, advise, promote and recommend changes to the RDSP.
The RDSP directly addresses poverty. It enables people to accumulate financial assets rather than be dependent on government benefits. It provides them with greater choice and control over their lives. In order to accommodate the RDSP as an asset, most provincial and territorial governments have waived their asset limits allowing people to receive government benefits, and they have eliminated claw-back on RDSP expenditures. Further, there are no restrictions on what the funds can be spent on.
The RDSP helps hundreds of thousands of disproportionately poor Canadians living with a disability to lift themselves out of poverty, overcome isolation, and participate more fully in their communities.
Although Canada’s RDSP – now available in every province and territory across the country – is the first of its kind, its implementation is attracting great interest around the world. In the US, two bills have been introduced to assist people with disabilities in similar ways, but these have not yet passed.
It took PLAN eight years to develop and gain legislative approval for its RDSP proposal. During that time, PLAN members mobilized families from their base in Vancouver and consulted with financial institutions, politicians and government bureaucrats to discuss and refine their proposal. Several elections interrupted the discussions requiring PLAN to brief and persuade new people.
Provincial governments had to adapt their laws to accommodate and support the initiative. Overcoming the welfare mindset of the provinces and convincing them to exempt RDSPs as an asset and eliminate claw back policies was one of the biggest challenges.
(Claw-back refers to a percentage of money, usually for taxation, that is taken from the total allotment of financial benefit.)
Total deposits to date: $334 Million
More than 40,000 RDSP’s have been taken up since Dec 2008
The Big 5 Canadian banks offer the RDSP
Contributions from Families: $126 million
Contributions from Government Grants: $153 million
Contributions from Government Bonds $55 million
While every scenario is different, the following illustrates how the RDSP can be applied:
1. A family registers their son, Josh with an RDSP
2. Josh receives disability benefits and has an income of less than
$24,183
3. Each month, Josh’s parents are putting $125 in Josh’s RDSP for a
total of $1500 each year
4. As the RDSP is based on Josh’s income, he will receive both the
Grant and Bond
5. The Canada Disability Savings Grant will contribute $3500
6. The Canada Disability Savings Bond will contribute $1000
7. Ted decides to place the funds in a conservative fund for stable
growth
8. When Josh is 54 years old, his father plans to give his inheritance
early and make a one time gift into the RDSP of $55,000. This
means there is more personal contribution in the RDSP than government
contribution, and therefore more flexibility for Josh when
withdrawing funds.
9. With a return of 5.5% annually, Josh will have $432,000 by the
time he starts withdrawals at age 55.
10. There will be no claw back on the funds.
11. This means an additional $15,000 annually to help Josh meet his
medical needs and leave his parents with the peace of mind that
Josh will be cared for.
All calculations are unique to the particular person’s situation. For an
accurate self-assessment visit the RDSP website and use the RDSP
calculator: http://rdsp.com/calculator
Ongoing barriers include:
Awareness: Ensuring that all people eligible
for the RDSP become aware of the tool, and
have the financial literacy to understand
how it works and how they can use it
Getting funds to people with low income so
they become eligible for more than just the
Bond
Legislation: Changing provincial
guardianship legislation so that individuals
can have an RDSP without being declared
incompetent
Welfare Reform: Extending the crack in dysfunctional
welfare systems to eliminate all
claw-backs on earned or un-earned income
Deficit: Shifting away from an income support
framework to an asset accumulation
one, now recognized around the world as
the most effective anti-poverty strategy
Inflexible Rules: Adapting the RDSP to enable
people with a disability whose condition
is terminal to withdraw funds sooner
Eligibility: Making the RDSP available for folks with a genetic condition that will lead to a disability that has not yet manifested itself
The RDSP, as a savings tool, is self-sustaining, supported by the investments that Canadians themselves make. It is believed that the private monies that become available through the RDSP to support the financial security of people living with disabilities will encourage the federal government to maintain its support of the initiative. All Canadian banks now offer it as a product not only because they see it as an important social responsibility, but because they recognize there is a 'disability market' and the RDSP represents a doorway to that market.
Download a PDF version of the RDSP Profile.
A comprehensive case study of the RDSP was produced by SiG@Waterloo and is available from their website.
Tags: Registered Disability Savings Plan, RDSP, Canada, social innovation, profile
