Group registered retirement savings plans (Group RRSP) are offered by employers to the employees as a benefit and to help them save for retirement. It is an individual registered retirement savings plan but through your employer. Plan contributions are deducted from your salary. The employer may choose to match or add to the contribution you are making.
Being in the finance industry since 1984, I have realized that people are often confused about which group retirement savings plan to buy, sometimes even whether to buy one or not. The golden rule here is if your marginal tax rate at the time of contribution is greater than marginal tax rate at the time of withdrawal, then you should go for RRSP. Let us understand what marginal tax rate is. Marginal tax, in easy terms, is the tax paid on the additional income. The more you make, the higher your tax rate and the more you pay. For instance, you put $1000 in RRSP at the time when your marginal tax rate is 36 percent. You get $360 as a result but it has only been lent to you. You have to pay tax when you take the $1000 out. But if at that point in time, you are in the 25 percent tax bracket, you pay only $250. That means 11 percent benefit apart from returns from an investment that you may have made with that money.
Going for a group registered retirement savings plan is a great idea both for the employer as well as the employee. Employees can plan for retirement and get free money from the employer. The employer, on the other hand, gets seen as a good place to work, gets competitive advantage in recruitment, and gets deductions on employee contributions.
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