New Year rings in top-ups to RESP program

(January 6, 2005) Canadians looking to sock away money for their children’s post-secondary education will get some additional help this year from Ottawa. There’s also a new grant program being introduced in Alberta.

At the federal level, changes to the Canada Education Savings Grant (CESG) program took effect on January 1. Ottawa is doubling the CESG matching rate (to 40% from 20%) on the first $500 of annual contributions to an RESP for low-income families (under $35,000 a year) and increasing the matching rate (to 30% from 20%) on the first $500 of annual contributions to an RESP for middle-income families (between $35,000 and $70,000). The adjustments were announced in last year’s federal budget.

Other families will continue to qualify for the 20% matching rate. Since 1998, the CESG has supplemented RESPs with a 20% grant on the first $2,000 contributed each year, to a maximum of $400 per year per child and a lifetime maximum of $7,200.

In Alberta, the provincial government earlier this week announced details of its new Alberta Centennial Education Savings Plan, which will provide additional grant money for higher education.

Starting this year, every child born in Alberta will be eligible for a $500 education savings grant. However, the child must also be enrolled in an RESP. Additional $100 grants will be available when the child turns 8, 11 and 14, for a total of $800.

“It’s a grant for higher education, but they’re also saying you have to set up a savings program, so they’re hoping to encourage families to get into the pattern of saving for higher education,” says Peter Lewis, vice-president of the Canadian Scholarship Trust Foundation.

Lewis concedes that $800 isn’t a lot of money, but he says the Alberta program is not intended to entirely fund a child’s post-secondary education: “It’s to try to change attitudes and behaviours and encourage increased savings through an 18-year cycle.”

Although the Alberta program is separate in funding, it’s being administered in partnership with the CESG program, Lewis explains. “This is one of the things I think will make the program successful. RESP dealers such as us will still only be dealing with the federal government, who will essentially pay the Alberta grant to us and settle up with Alberta afterwards, so it makes it more effective for companies offering RESPs.”

Lewis says the RESP Dealers Association of Canada has been encouraging other provinces to introduce similar grant programs, but so far, Alberta is alone. “There’s a lot of interest from other provinces, but most say they think it’s a great idea, but they don’t have the money to do it right now. Alberta has the money.”

“We think this makes a lot of sense,” he adds. “It’s a long-term strategy that’s going to help to deal with access to higher education.”

Federally, Lewis says he doesn’t expect any changes to the CESG program in the 2005 federal budget, although he says RESP dealers are still talking to Ottawa on issues such as contribution limits, currently set at $4,000 a year.

“There’s an argument that the limit should be indexed in some way, but there’s not much interest from the federal government.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com