In a Jan. 5 submission to the federal government, the Investment Funds Institute of Canada (IFIC) requested an amendment to the Bankruptcy and Insolvency Act that would give beneficiaries of Registered Disability Savings Plans (RDSPs) creditor protection for all contributions made to their plans.
“The RDSP was created to help provide disabled persons with a stable income stream to help pay for their basic needs,” says Paul C. Bourque, IFIC president and CEO, in the letter. “The current law undermines that goal by permitting individually contributed RDSP assets to be seized as part of a bankruptcy proceeding against a beneficiary.”
An RDSP is a long-term savings plan designed to help Canadians with disabilities and their families save for the future. Through an RDSP, parents are able to ensure that financially dependent adult children with disabilities will continue to receive financial support when parents are no longer able to do so. The Government of Canada matches these contributions within certain limitations.
The Canada Disability Savings Regulations provide creditor protection for the government’s contribution to the RDSP. However, contributions made by family members and other individuals do not have the same protection. Under current regulation, a trustee can seize these individually contributed assets from the RDSP in the event of bankruptcy.
“This policy holds the potential to impose significant hardships on some of Canada’s most financially vulnerable citizens,” says Bourque. “IFIC members report that it also discourages some parents from establishing RDSPs.”
He adds, ”The act already provides beneficiaries of registered retirement savings plans and registered retirement income funds with creditor protection—both of which are solely funded through personal contributions. We believe that people with disabilities deserve equal protection for the funds contributed on their behalf.”