By Sheryl Smolkin
Eye on Benefits
During RRSP season we are bombarded with stories about why you should open an RRSP and how you should invest your contributions. But if your employer has a defined contribution pension plan or a group RRSP, you should max contributions to the company plan before worrying about putting money in an individual RRSP.
1. Employer matching: Employers generally make some kind of contributions on behalf of members. For example, if you put in 5 per cent of your income your company may contribute up to the same amount. It’s free, but you don’t get it unless you enrol and contribute.
2. Lower fees: The average management expense ratio for a retail mutual fund may be from 2.3 to 2.6 per cent depending on the asset class. In contrast, a company-sponsored plan administered through an insurance carrier can typically negotiate fees as low as .5-1.5 per cent. Michelle Loder a senior pension consultant at Towers Watson, that could be the difference between retiring at age 62 instead of age 66!
3. Payroll deduction: Payroll deduction promotes disciplined savings. Also, taxes withheld from the rest of your pay are reduced. It’s like getting your refund through the year, instead of when you file your tax return in April.
4. The pros manage your money: The people who manage group insurance plans are usually the same people who manage other pension plans. They tend to be long-term investors and so are less likely to react impulsively to short term events. READ MORE