Workplace retirement savings plans

When you think of retirement, who do you imagine yourself with? Are you taking long trips to Europe with your family? Or maybe you’re spending more time on your hobby and getting your partner involved? Whatever your retirement dreams are, and however far away planning for them seems to be, one thing is true. If you don’t start planning for them now you’ll never get there.

Getting to a comfortable retirement is made easier if you consider getting a job with a workplace retirement savings plan even over one with a higher salary. With a workplace retirement savings plan, also known as group retirement savings plans (GRSP), if your employer matches contributions you may come out with more money down the road than the job with the higher salary.  

Workplace retirement savings plans will often have lower fees and operational expenses than if you were to invest money on your own, as costs are spread among a group of people from your workplace. That means more of your money goes into savings than into paying someone to make personal recommendations for you.

Young couple standing in a field. The father is holding and looking at his baby, while his wife stands beside him looking at the baby

Auto-saving to retirement

Taylor is 32 and lives in Guelph with his wife and newborn son. He needed a simple solution to saving for retirement and wanted it done automatically for him. He works a full-time job with a matching Group Retirement Savings Plan (his employer matches his contributions) and contributes the maximum amount allowed. The contributions automatically come from his paycheque before his salary gets to his bank so he doesn’t have to plan for it or take extra precautions. He also uses a robo-advisor to automatically take $20 off each paycheque and invest it into a TFSA. He set up the automatic withdrawals three months ago, and is hoping to see the money grow over time.

What are GRSPs and how do they work?

A group retirement savings plan is similar to a Registered Retirement Savings Plan (RRSP), but it is set up by your employer. Your contributions towards a group retirement savings plan are usually automatically withdrawn from your paycheque and saved with a financial institution, mutual fund company or insurance company. Your contributions are handled by a group administrator, often times the human resources team. In some cases, your employer may even match a portion of your contribution, but this is not always the case.

Similar to a personal RRSP, you decide how the money in your GRSP will be invested but your choices are limited to what investment options are offered by the financial institution your plan is with. Usually your employer will provide you with investment options that are based on your risk tolerance.

The contributions you make towards your GRSP are tax deductible and you get the tax back at source. This means you’re paying less tax throughout the year, rather than waiting to file your taxes at the end of the year to get a rebate.

Group retirement savings plans are different with each employer, and each has their own rules, governance structures and eligibility requirements. Ask your employer or human resources representative when and how you can join. 

Things to remember

  1. Maximum contribution: find out what the maximum contribution to any GRSP is, and see if you’re contributing that. Most workplaces will enrol you into the default contribution amount, which may not be the maximum, and this means you are putting away less for your retirement than you can. Contributing more could also provide a bigger tax break for you, but discuss this with your employer or human resources representative. Remember to revisit this whenever you get a raise or promotion as the amounts you can contribute may change.

    Also, keep in mind that if you have a personal RRSP and a GRSP, there is a combined maximum contribution of 18 per cent of your salary. Contributing more than 18 per cent will mean you get taxed on the extra amount you invest.

  2. Restrictions to withdrawals: your employer may restrict you from withdrawing from your GRSP for the duration you’re employed with them. It’s best to check with your employer or human resources representative to understand any specific restrictions there are.
  3. Leaving your workplace: if you leave your workplace, you can take the funds from your GRSP and put them into a personal RRSP with any financial institution.

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