Launch-year hiccups have some taking a cautious approach to disabled savings plan
Beth Marlin SPECIAL TO THE STAR
Published On Wed Nov 11 2009
It’s been almost a year since the launch of the Registered Disability Savings Plan. But Graeme Treeby, a financial planner, has yet to open an account for his daughter Jennifer, 23, who is severely disabled with cerebral palsy and doesn’t speak.
The Stouffville, Ont., resident, a former accountant who now works as a financial planner through his business, the Special Needs Planning Group, is not alone. About 3 per cent of the estimated 400,000 to 500,000 eligible Canadians have so far registered an RDSP, a plan that was announced by Finance Minister Jim Flaherty in his 2007 budget speech and launched last December.
“The Government of Canada has already exceeded its projected uptake for 2009-2010,” Human Resources and Social Development Canada told the Star in a written response to questions about the program.
“We expect that the number of RDSPs registered will continue to increase during the remainder of the year.”
However, the RDSP’s low response rate, even as the Dec. 31 deadline of its second contribution year approaches, is unfortunate, says Jack Styan, executive director of the Vancouver-based Planned Lifetime Advocacy Network, which is credited with the RDSP idea and continues to consult heavily with the federal government in its development.
“It’s early days,” says Styan, who says the revolutionary new program suffered from a widely held misconception that disabled people had to contribute up to $1,500 to start an RDSP account. In fact, he says, those who qualify for the federal disability tax credit will get a $1,000 government bond each year for up to 20 years just for opening an account, even if they don’t put any money. And those who qualify for income-based grants could receive up to a further $3,500 per year from the government.
But Treeby, who has talked with “dozens and dozens of parents,” is less surprised by the RDSP’s low uptake rate.
“It’s a step in the right direction,” he says, but adds “there’s a number of issues I see with the RDSP.”
For instance, many parents of dependent adult children with developmental or intellectual disabilities hit an unexpected hurdle when their bank required them to produce legal proof of guardianship before they could open an RDSP on their children’s behalf.
“That’s one of my biggest disappointments (with RDSP regulations),” says Treeby, who expects it will take at least six months and cost thousands of dollars in legal fees to have his dependent daughter declared incompetent and for him to be appointed her trustee by a court so he can register an RDSP on her behalf.
The problem doesn’t exist in British Columbia, where provincial legislation allows for an adult who may lack intellectual capacity to enter into a “representation agreement” with a parent or trusted individual so they can perform transactions such as opening an RDSP on their behalf.
However, Styan says affected parents in Ontario and other provinces should postpone the onerous and expensive legal process of asking a court to appoint them their adult child’s trustee.
“I would say wait. We have a solution coming so it’s easy and doesn’t require a certificate of incompetency,” says Styan, who doesn’t know if the changes will be in place in time for the 2009 contribution deadline of Dec. 31. (Last year’s deadline was extended until March 2 because the major bank’s were not equipped to process the applications in time.)
While he would not disclose the government’s proposed solution, Styan says it will be “along the lines” of the B.C. law and legislation in Ontario that currently authorizes officials with the Ontario Disability Support Program to declare a parent of an intellectually challenged adult their trustee for the purpose of administering monthly disability payments.
But Treeby feels the RDSP also discriminates based on income through its income-based bonds and grants, and by not allowing people over the age of 49 to contribute to an RDSP.
“I don’t think that’s fair,” he says.
As well, some disabled people who turned 18 or 19 last year before the program was launched have been refused the full $4,500 in grants and bonds they were expecting as low-income adults. Instead, their parents have been asked to fill out new RDSP forms for children aged 17 and under and have been told the government grants and bonds will be based on their child’s family income in 2006, when they were minors, rather than their income as adults in 2008.
“Do you know of any other (government) program that goes back two years (to look at income)? I don’t,” says Treeby.
HRSD Canada’s response is that the program is a savings plan, not a tax credit or tax deduction plan and therefore doesn’t have to follow the same rules regarding the reference year for income as the Canada Revenue Agency.
Again, Treeby takes issue with the government’s position.
“They call it a long-term savings plan. It’s really a long-term pension plan,” he says. “You can only take out (money) by their formula.”
The formula for withdrawal, which may only take place 10 years after the last contribution and must begin at age 60, is complicated, says Treeby. You take the person’s life expectancy, add three years to that, then subtract the age at which the person starts to withdraw income, to calculate the expected number of years of withdrawals. After age 60, RDSP beneficiaries are required to withdraw each year a payment equal to the total amount divided by the number of withdrawal years. So, in the case of a person who has $40,000 in their RDSP, expects to live to age 80 and begins withdrawals at age 60, the formula would be (80 + 3) —60 = 23 years of withdrawals. So, after age 60, the government would allow them to withdraw only 1/23rd of their income each year, which would amount to only $1,739 a year or $144.93 per month, says Treeby.
This disappointed many parents, who hoped the money could be withdrawn in bigger lump sums to pay for housing or nice vacations for the beneficiaries.
Still, the program is “a step in the right direction,” Treeby says.