RESP grants favour higher-income families, federal study confirms

A new federal study confirms what critics have said for years: Ottawa's centrepiece education savings program is helping higher-income families much more than needy families.

An internal evaluation of the Canada Education Savings Program, which pours more than $800 million in grants each year into the education-savings accounts of Canadian families, concludes that it is skewed toward the well-off.

The report found that about half of the money goes to families with household incomes of more than $90,000, and about a third goes to those with annual incomes of more than $125,000.

The grants are used to top up registered education saving plans or RESPs, a federal tax shelter, providing up to $500 a year in "free money," as one investment firm calls it. The cash amounts to an instant investment return of 20 per cent, in addition to the tax-free earnings of investments inside an RESP.

But as savings plans, RESPs are primarily attractive to higher-income families who have money left over from basic living expenses, while less well-off families living from paycheque to paycheque have little ability to save — and therefore fewer opportunities to obtain the grants.

The Oct. 14, 2015, evaluation report for Employment and Social Development Canada suggests that the program money is wasted when it comes to providing savings incentives for wealthier families.

"Families with higher income require little encouragement to save for the [post-secondary education] of their children as they have significantly more financial resources at their disposal and they were already saving for [post-secondary education] prior to the introduction of the [grants] in 1998," says the report.

Remains skewed

CBC News obtained a copy of the report under the Access to Information Act; the department recently posted a public version.

The evaluation calls on the government to "explore ways for funds to more effectively reach families with the greatest need for assistance and encouragement to save for their children's future."

The program remains skewed toward higher-income families, despite newly added elements such as the Canada Learning Bond designed to direct more money to the less well-off. The add-on elements are making some progress in redressing the imbalance, the study found, but more is needed.

The findings support earlier criticisms from Kevin Milligan, an economist at the University of British Columbia, who argued in 2002 and 2008 that the grants disproportionately benefit high-income households that are 3½ times more likely to have an RESP than low-income households.

Many young families are finding it increasingly difficult to put money aside.– Armine Yalnizyan, senior economist, Canadian Centre for Policy Alternatives

"The government's granting requires that you be in a position to reduce consumption and save," Armine Yalnizyan, senior economist with the Canadian Centre for Policy Alternatives, said in an interview.

"Saving a little more is not always dependent on personal traits like willingness to be industrious or stoic. Many young families are finding it increasingly difficult to put money aside … as costs like child care and extracurricular activities, food and even rent go up."

The Canadian Federation of Students issued a report in March last year that called for the elimination of RESPs and their top-up programs such as the Canada Education Savings Program. They amount to $1 billion in annual public funding that mostly helps the wealthy, says the report, arguing the money would be better spent reducing or eliminating tuition fees for everyone across Canada.

Budget 2016 increases grants

The new federal report "validates what we've already been saying, which is that the RESP savings program primarily benefits high-income families," national chair Bilan Arte said in an interview.

"We need to start being smart about where we spend our public money.… We don't need tax credits, we don't need savings plans," she said, adding that Ottawa should end its education loans, savings and credit programs and put the $3 billion of annual savings into tuition cuts, matched by the provinces.

The Trudeau government's March 22 budget increased basic education grant amounts by $1,000 a year for lower- income students, and eased student-loan payback rules, but did not change RESP rules.

The evaluation is the first full review of the Canada Education Savings Program since its inception in 1998, covering the 16 years until 2013. The report says management agrees the program needs to better target lower-income families, but gives no specifics on what will be done.

A spokesman for Employment and Social Development Canada, Josh Bueckert, pointed to the budget's other measures for students as increasing access to education for lower-income families.

"Additionally, the government of Canada will work with the provinces and territories to bring further enhancements in 2017-2018," he said.

The Ontario government in February announced a program to help eliminate post-secondary tuition fees for students from low-income families.

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