If you work for an organization that offers a Group Retirement Savings Plan (GRSP), you have another tool to help you reach your retirement goals.
What is a Group Retirement Savings Plan (GRSP)?
A Group Retirement Savings Plan (GRSP) is a collection of individual Registered Retirement Savings Plan (RRSP) accounts that an employer sponsors for its employees. It is typically administered by a plan provider, such as an investment or insurance company. Employers provide GRSPs to help employees save for retirement and take advantage of better management fees. Employers who sponsor the GRSP also have the option of contributing to individual employee plans.
In this article, we explain how a GRSP works, explore the differences compared to Registered Retirement Savings Plans (RRSPs) and discuss other ways to maximize your retirement income.
How does a GRSP work in Canada?
A GRSP works almost the same way as an individual RRSP, and similar rules apply. Here are some of the key ways that employees can benefit from a GRSP:
- It’s easy to contribute to a GRSP, as contributions typically come from your pay using pre-tax dollars, which results in immediate savings through reduced taxes at source.
- Employees decide the amounts they want to contribute and can choose investments from a selection of mutual funds. Like an RRSP, investments in a GRSP grow tax-free.
- Lower management fees on investments in the GRSP.
Group Retirement Savings Plan Employer Benefit
Here are some of the key ways that employers benefit from offering a GRSP:
- Helps attract talent to the company.
- Helps with employee retention.
- GRSPs are easier to manage compared to other employer-sponsored pension plans.
Group Retirement Savings Plan (GRSP) vs RRSP
The main difference between a GRSP and an RRSP is that a Group plan is administered by an employer on behalf of employees, while an RRSP is solely the responsibility of the individual plan holder.
Another key difference between Group plans and individual plans is that Group plans are pooled, which typically means lower management fees for GRSP plan holders.
A GRSP is just another way of saying Group Registered Retirement Savings Plan (or Group RRSP) and both can be used interchangeably.
How do I contribute to a GRSP?
Contributions to a GRSP or Group RRSP can be made by both employers and employees. As an employee, you can enjoy the convenience of automatically contributing to your plan from your pay. Automatic payroll deductions are a good idea for two reasons. One, you don’t have to think about it, so you’re always putting something aside for your future, kind of like setting up a good habit. Two contributing in smaller amounts is more manageable for many of us. Or you can contribute to your GRSP whenever you have the available funds.
Group Retirement Savings Plan contribution limit
The annual maximum contribution limit for GRSP is 18% of your previous year’s income, up to a maximum of $30,780 (the limit for 2023), plus any unused contribution room. You are allowed to contribute to both a GRSP and your individual RRSP, as long as you don’t exceed the limit. Your total contribution room for the year can be found on your Notice of Assessment.
However, it’s important to be aware of some key points when it comes to GRSP contributions:
- Contributions from your employer count toward your annual maximum RRSP contribution limit.
- Your employer’s contributions to your Group RRSP are considered earned and taxable income.
- You will receive an RRSP contribution receipt for tax purposes – for both your and your employer’s contributions.
- You must stop contributing to your GRSP by the end of the year in which you turn 71.
Technically speaking, you can withdraw funds from your GRSP before you retire, but you will have to pay taxes on those withdrawals, including a withholding tax. There are, however, some exceptions, such as if you are a first-time home buyer, want to enroll in post-secondary education or you want to buy a home for a disabled relative.
Most of us will access funds by converting our GRSP to a retirement income option, such as a Registered Retirement Income Fund (RRIF) or annuity, by the end of the year we turn 71.
What happens to your GRSP when you leave the company?
If you leave your employer before you retire, the money in your Group Retirement Savings Plan stays with you. There are usually two options when this happens. You can transfer the funds from your Group RRSP to your own individual RRSP. Or, if you want to start receiving income and meet eligibility requirements, you can transfer the funds to a RRIF.
Maximizing your retirement income
Retirement savings are one of the pillars of retirement income, along with company pensions and old age pensions. But sometimes volatile financial markets can derail our retirement savings targets. What’s more, not everyone has a company pension plan or group retirement plan to fall back on. When you factor in today’s climate of stubbornly high inflation, it can be a challenge to live your desired lifestyle in retirement.
So even though we do our best to diligently save and invest, a Group Retirement Savings Plan may not provide the savings we need. That’s why many Canadian homeowners aged 55+ look to the equity in their homes to boost their retirement cash flow, give themselves more income options and alleviate financial worries.
The CHIP Reverse Mortgage is a solution that’s growing in popularity. With the CHIP Reverse Mortgage, you can access up to 55% of the equity in your home in tax-free cash. The funds can be used to meet a variety of different needs, such as taking care of day-to-day expenses, going on a much-needed vacation or helping your children with a down payment on their first home. And since the money you receive from a reverse mortgage is a loan, it’s not added to your taxable income and does not affect benefits such as the OAS.
Learn more about how a CHIP Reverse Mortgage works and how it can help supplement your cash flow needs in retirement or please call us toll-free at 1-866-522-2447.