Group RESPs are sold only by scholarship plan dealers. Each group plan is different and has its own rules. These rules are described in the plan’s prospectus — a legal document that describes how the plan works.
How group plans work
When you join a group plan (sometimes called a pooled plan), you agree to buy a set number of plan units. These units represent your share of the plan. The maturity date of the plan is based on your child's birth date.
If you leave the plan before it matures, you get back the money you put in, but your investment earnings go to the remaining members of the group. If you stay in the plan until it matures, your child may share in the earnings of those who left the plan early.
You have to make regular contributions according to a set schedule. Here's what happens if you miss a contribution:
You may have to pay a penalty and interest on the missed contribution to stay in the plan.
Your account may go into default and your plan may be terminated.
Make your contributions on time. If you don’t, your plan may be terminated and you may have to give up some, or even all, of your investment earnings.
How your money is invested
The plan manager invests your savings and government grants along with money from other plan members. Your money is usually invested in lower-risk investments with fixed returns. Examples: bonds, GICs, mortgages.
The sales fees you pay when you join the plan decrease the earning power of your investment in the first few years. That's because these fees are usually taken from your early contributions.
What happens when the plan matures
Your child shares in the pooled earnings of investors with children the same age. How much money your child receives depends on:
how much is in the group account, and
the number of children in the group who will be starting post-secondary education.
If your child doesn't begin post-secondary education at the same time as the rest of the group, the earnings you receive from the plan may be affected.
Group plans often have additional rules about how much and how often your child can take Educational Assistance Payments (EAPs) and which education programs are eligible. Know the rules before you open a group plan.
If you want to leave a group plan before it matures
If you change your mind and cancel within the first 60 days, you get all your money back and there are no costs.
If you cancel after 60 days:
You get your contributions back, less the fees. The amount you get back is always less than the money you put in.
You may also have to forfeit your earnings if you cancel the plan. Your earnings remain in the plan and are divided among the other members of the group when the plan matures.
You have to give any government grants back to the government.
The plan may impose other restrictions and penalties. These will be outlined in the plan prospectus.
Warning: If you cancel your plan in the first few years, you’ll get back much less than you put in. This is because sales charges are deducted from your early contributions, so less of your money is invested.
Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca