Human Resources and Skills Development Canada
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Human Resources and Skills Development Canada

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Review of Registered Education Savings Plan Industry Practices

6. Conclusion and Recommendations

Over the past ten years, a large number of Canadians have accumulated significant sums in education savings, thanks to generous government incentives and widespread availability of RESPs. Financial institutions and group scholarship providers have been instrumental to this success. Our review of industry practices confirmed that, for the most part, the industry is delivering government programs in accordance with policy objectives and is encouraging and supporting Canadians who save for the education of children. We make some modest recommendations that may lead to even better results.

As we do so, we are conscious of the fact that industry standards and the government’s education saving policy continue to evolve. Providers may not always be completely in step with the changing environment. We advocate certain standards we consider appropriate but which at this time do not formally apply to members of the industry. As well, providers have made commitments to consumers who opened RESPs, and cannot change those existing plans freely.

Through our interviews with RESP providers we have found that financial institutions, including banks, credit unions, investment and securities dealers, are not actively promoting RESPs. We believe that this is less than fully conducive to achievement of the government’s education saving objectives. More Canadians would save for education, benefit from the grant, and be more fully aware of the range of RESP options available to them if financial institutions would take a more proactive approach.

  1. We recommend that the Government of Canada engage financial institutions in discussions to improve promotion of RESPs, through publicity about the plans and subsidies, information materials and training for personnel directly dealing with consumers, and in other ways.

    Saving for education through RESPs is one of many saving options available to consumers. It is vital that consumers have good information that enables them to make choices that are in their best interest. Consumers would benefit from simple, clear information in plain language, a standard that group scholarship provider prospectuses could more closely achieve.

    In addition to risks that flow from the type of investment chosen, savings in an RESP are also subject to the risk that the plan will not result in payment of all investment income, the grant and the bond to the beneficiary through EAPs. Various other outcomes are possible, depending on the type of plan. Consumers are made aware of these possible outcomes, but do not get clear, simple information about the probability that a plan will have a result other than the most desirable one.

    The consumer who has a full appreciation of the risks and rewards attached to various RESPs can make good choices, not just among different RESPs and different providers, but also between RESPs and other forms of saving. Some might opt for other saving vehicles, including RRSPs and the new Tax-Free Saving Account, which have different risks and rewards.

  2. We recommend that the Government of Canada, working with the RESP industry, examine opportunities to improve the disclosure of the specific features of plans and the probabilities of various potential outcomes of plans to consumers.

    We have shown that directors of foundations who are employees of the distributor or own shares in the distributor are in a conflict of interest, and that they make up the majority of two boards of the group scholarship trusts. We are concerned about this, as these organisations are entrusted with the delivery of major programs and play a fiduciary role towards both the government and the public.

  3. We recommend that the Government of Canada establish minimum standards regarding the governance structures of RESP providers with whom it enters into agreements.

    Finally, we have shown that group scholarship plans produce desirable and less desirable outcomes in relation to the education savings policy objectives of the Government of Canada. On the one hand, group scholarship providers reach out to people who would otherwise not save for education and encourage many to save more than they otherwise would. Where the beneficiaries of these plans ultimately receive EAPs, the providers make a contribution to the government’s objectives.

    However, they also impose a cost when plans are closed prematurely or when beneficiaries do not qualify for full EAPs and payment of the grant and the bond because of rules they, not the government, impose. Beneficiaries may be discouraged from pursuing post-secondary education for lack of financing. As well, subscribers to group scholarship plans that fail may also be discouraged from saving through other means.

    Our concern is heightened by recent program data that show that lower-income Canadians disproportionately sign up for group scholarship plans, since they are more at risk of not being able to save according to a fixed schedule over a long term. Since the beginning of 2004, Canadians have opened nearly one million RESPs, and 76,000 of these drew the Canada Learning Bond. Nearly three hundred thousand of these RESPs were group scholarship plans, and 44,000 of these drew the CLB. The share of RESPs that attracted the CLB is three times as large among group scholarship plans as among individual and family plans.

    We think that the government’s objectives would be better served if more RESPs in group scholarship plans survived until maturity and resulted in EAP payments, or if the consequences of other outcomes would be more favourable. Here are some potential changes that would move the plans in that direction:

    • Making transfer to an individual plan without a contribution schedule the default option when the subscriber misses deposits. This would ensure that no subscriber unwillingly loses entitlement to investment income, the grant and the bond.
    • Making the enrolment fee proportional to contributions. Plans with a long term to maturity would have a lower fee than at present and be more attractive to the consumer, and losses in case of termination of those plans would be reduced.
    • Giving beneficiaries who qualify for EAPs according to government rules at least some of the investment income their contributions have earned and part of the grant, the bond and related investment income.
    • Offering scholarship payments for part-time studies and vocational programs.
    • Providing upward adjustment of the scholarship payment if the student switches to a longer program or a second program, as is already being done to some extent. Providers could withhold part of the scholarship amounts as a reserve for later claims by beneficiaries.
    • Reducing the negative consequences of missing deadlines and reducing restrictions on delays in completion of studies.
    • Making a greater effort to advise participants of advantageous options available to them.

    A good way to proceed, we believe, is for the government to engage in consultations with all parties involved, including the RESP providers, to review the facts and develop new approaches.

  4. We recommend that the Government of Canada engage in consultation with all partners, including the RESP industry, to introduce measures that ensure that RESPs are in accordance with the government’s RESP and education saving policy objectives.

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Date Modified:
2008-07-24