Proposed Group RRSP for Employees

1)      This Group RRSP is designed for employees that receive T4 income. And you must be between the ages of 18 and 65 to participate.

2)      We have already determined the maximum you can receive at age 65. Based on today’s calculations, you could receive up to approximately $1,175.83 per month. However, there are some conditions. You need to contribute for at least 39 years out of a potential 47 years between age 18 and 65 and it must have been the maximum amount required each year.

3)      This is a defined benefit plan, so you will know ahead of time, the maximum you can expect to receive.

4)      The contributions are made by the Employee and matched by the Employer. It will be necessary for the contributions to increase each year to ensure the ability of the fund to maintain future retirement income demands. We can’t tell you how much these increases will be or how often they will be increased, but it will be a modest increase each time.

5)      We have also established a limit on how much you can contribute each year. The current maximum allowable is approximately $2,732.40 annually for the employee and the employer matches this and puts in another $2,732.40 for a maximum annual amount of approximately $5,464. Even if you want to contribute more, you can’t.

6)      You will not need to worry about how the money is invested, as you will not be involved in this part of the process and you will have no say in the type of investments we use.

7)      You will not need to worry about performance of your investments, as the trustee will assume that responsibility. You will need to trust us that the income we promise you today will be honored when you are retired. Unlike most other investments, your risk tolerance, your investment knowledge, your time horizon and your age will not be taken into consideration, as everyone gets the same plan.

8)      Bonus, you can apply to receive a reduced pension at age 60, but it will have to be reduced by 36%.We can’t possibly give you the full pension at 60.  Approximately $752 at today’s rate. Freedom 55 is not a possibility with this plan. So don’t plan on retiring this early unless you have provided alternative sources of retirement of income.

9)      Any money you receive from this pension plan will be taxable at whatever your tax rate is at the time you begin withdrawing. We know taxes have never gone down. However, we can expect them to go up. So be prepared to receive less income after your pay your income taxes.

10)  We have built in some protection into this plan so you won’t be tempted to use this money for anything else during your lifetime. We have made sure that you cannot access this money before age 60. This money is not accessible for any reason. It is designed to provide you with an income in retirement. Not for years of low income, loss of employment, or if you have a critical illness or are terminally ill. We feel that if plan members were allowed to access this money for any of these other reasons, it may jeopardize their own retirement and also affect the future retirement plans of other members.

11)  And, all the money you and your employer have contributed to this plan cannot be used as collateral for a loan. This is the same as a personal RRSP. So, this is not an asset you own.

12)  If you still have a spouse, and die, your spouse may receive a portion of the plan holder’s pension as a survivor benefit. But it may not be what you expect. It could be 60%. Or it could be much less.

13)  However, if you are already collecting your pension, we can assure you that the combined total of both the survivor pension and your pension will not exceed $1,175.83.

14)  We have designed this plan to protect everyone who has contributed to the plan. So if you are single, widowed or divorced and when you die, we will send a cheque for $2,500 to your estate to help with the cost of your funeral. We do realize that funeral’s cost a lot more than this, but it’s still a token amount to help your family out. This amount is also taxable to the deceased person or to the estate.

15)  We have provided even more protection with this plan for everyone else. All of the money you contributed and all the money your employer contributed will remain in the plan for others who are still part of the plan. It wouldn’t be right to have anyone who happens to die early be able to receive a lump sum refund, when everyone else can only get their share out as a monthly pension.

What do you think of my Group RRSP Plan?

(You may or may not realize, but this is our Canada Pension Plan)