One of the best-kept secrets in company benefit plans is group RRSPs, which is a collective take on the RRSP. Group RRSPs are ripe with benefits for the taking.
On the surface, a group RRSP is just like an individual RRSP but it is offered through your place of work. It features tax-deductible contributions and tax-deferred growth. The difference is in the advantages your employer adds to the equation and this difference can be substantial.
Most group RRSPs include some form of employer matching, ranging from 2% to 6% of salary, which is basically free money from the employer. Depending on the matching formula, the employer contribution can be as much as, and sometimes more than, a typical annual salary increase. By taking advantage of the group RRSP, you’re essentially getting an extra bonus from your employer!
Generally, when employers establish group RRSPs, they involve the same institutional money managers who look after pension plans. By participating in a group RRSP, you have access to a calibre of money managers not usually serving the retail investor market. Furthermore, employers negotiate lower management expense ratios (MER), which is essentially a fee that is deducted from your fund to pay the money managers. While a 0.75% or 1.00% difference may not seem like much on paper, it makes a big difference in how much you can accumulate for retirement.
One of the great advantages of group RRSPs is that you contribute to them through payroll deduction. Your contribution is deducted directly from your pay before you even have a chance to miss it. In addition, income tax deducted at source can be adjusted to take your group RRSP contribution into account, providing you with RRSP-contribution-related tax savings right away—far more efficient than waiting until the following April for a refund.
Younger employees often have the most to gain by getting involved in a group RRSP because they have years of tax-deferred compound growth ahead of them.