Make the most of your group RRSP
If you're seeking a raise, but your employer isn't cooperating, then look to your group RRSP plan to get more out your boss. Chances are you are leaving thousands of dollars on the table that could otherwise be making you money.
That's because many employers who offer group RRSP plans will make a contribution to the plan when you do, and most people fail to take advantage of that, experts say.
Bruce Cohen, an Ontario-based financial commentator
and co-author of the book "Pension Puzzle," says a group
RRSP is simply a plan that allows employees to contribute to a registered
retirement plan and it's similar to an individual RRSP. In fact,
contributions to it are treated the same as a nongroup RRSP. However,
as a work perk, employers often kick in based on the employee's
"What employees don't understand is that it's
free money they're giving up," says Lori Bak, vice-president
of client relationships and marketing with Sun Life Financial group
retirement services in Toronto.
Half fail to invest
So how bad is it? Awful, says Dylan O'Heron, manager of retirement
specialists for Fidelity Investments Canada Limited in Toronto.
"Half the people are leaving money on the table," as much
as $1,600 a year, he says. For a person earning $40,000, that amounts
to a four-per cent raise.
Bak adds that in some group plans, employers match
employee contributions dollar for dollar.
"Where else can you get a 100 percent return
on your investment?" she asks.
Cohen says "group RRSPs are really just dollar
for dollar. If you and your employer put money in, there is no pension
adjustment. An RRSP is not a pension." A contribution simply
applies to the maximum $20,000 you can put into an RRSP in 2007,
or 18 per cent of your earned income.
Both Fidelity and Sun Life examined their own databases
of group RRSP plan holders and found that Canadians don't take full
advantage of them. Sun Life found that 84 per cent of its employer
clients offer a group RRSP, but less than half of all eligible employees
Fidelity found that 37 per cent of members eligible
for matching contributions contributed nothing to the group RRSP.
Another 12 per cent contributed but not the maximum. That meant
they typically left $900 on the table since matching programs can
range anywhere between 25 per cent and 150 per cent.
Lack of awareness
So, why don't more Canadians take advantage of the opportunity? Cohen blames it on financial advisers. "Many advisers fail to persuade their clients or tell them what they have in their workplace plans. Ideally, the workplace account should be coordinated with individual accounts."