The federal government will choose a single financial provider to autoenroll children in RESPs through a competitive process it plans to launch in 2025.
Earlier this month, Employment and Social Development Canada (ESDC) began seeking submissions from financial institutions to help it develop a procurement process for selecting the provider firm. The submission deadline is Sept. 27.
The government seeks a financial provider with “good track and reputation records in delivering financial services and viable investments products to low- and modest-income families.”
The government said it expects to select a financial organization in 2026.
As stated in the federal budget, Ottawa will begin opening RESPs for children of low-income families two years later, in 2028, if their families have yet to enroll them in a plan by the time they turn four years old.
That means eligible kids born this year and after will receive up to $2,000 of Canada Learning Bond (CLB) payments even if their family never opens an RESP on their behalf. (A family does not need to contribute to an RESP to receive the CLB, but must open an RESP.)
In this scenario, the government would be the RESP’s subscriber until the child’s family, or the child when they are an adult, takes over the plan.
The CLB takeup rate at the end of 2023 was 43.1% of eligible youth, meaning 2.7 million children from families with low income haven’t received the CLB to which they are entitled, the government said.
The 2024 budget stated that 130,000 additional children would receive the CLB each year through automatic enrollment.
The government will also allow parents of eligible children born before 2024 and young adults who have never claimed the CLB to ask the ESDC to open a RESP with the contracted provider and begin automatic CLB deposits, beginning in 2028.
A further 40,000 children and youth would benefit each year as they or their caregivers opt in this service. Under this scenario, the parents or the adult beneficiary would be the subscriber, not the government.
As stated in the 2024 budget, the government believes its “recent efforts to expand automatic tax filing initiative would help ensure that more low-income Canadians are able to receive the benefits to which they are entitled, including [CLB].”
Role of the provider
The government will send out notification letters to eligible families with children born this year and begin opening autoenrolled accounts in 2028.
The ESDC would be the RESP’s subscriber and the child would be named as beneficiary using “anonymous unique identifiers,” the government said.
Under draft legislation released this month, the government proposed that a child’s family could not contribute to an autoenrolled RESP, but could take it over from the government and then do so. At age 18, the child could take over the plan, receiving CLB plus any interest.
The child’s parent or caregiver could opt out of the RESP preemptively. A caregiver could also choose to close the plan, with CLB and any interest in the plan being returned to the government.
Autoenrolled RESPs cannot make educational assistance payments, so caregivers or adult beneficiaries would need to take over the plans to access money for post-secondary education.
Once a family or adult child takes over a plan, the government would provide the family’s personal information to the provider firm. The firm would also need to perform know-your-client analysis. Upon taking over the plan, the caregiver or adult child could either keep it with the provider firm or transfer it to another firm.
The government said it would be encouraging caregivers to take over the accounts and make contributions that would attract matching Canada Education Savings Grant payments from the government.
The ESDC has asked financial institutions several questions in its requisition, including if a contract provider would be able to provide autoenrolled plans without charging the government a fee. If a fee would be necessary, the ESDC asked for fee structures to consider.
The ESDC also asked what kinds of investment product or products would generate the best results for beneficiaries.
“The government will be seeking an investment vehicle that protects the principal CLB deposits and maximizes the financial benefit for the beneficiary for future use towards post-secondary education studies,” said Maja Stefanovska, a spokesperson with the ESDC, in an email.
The government asked institutions to opine on the “optimal duration” for the contract between the government and the RESP provider, and asked “what mechanisms would ensure seamless transition for RESP clients” if the contract between the firm and the government were not renewed.
The federal government first proposed RESP autoenrollment in its 2024 budget, and it became law with the passage of the first budget bill on June 20. However, the changes to the Canada Education Savings Act outlined in that bill will not come into force until a future proclamation date.
The income thresholds for receiving the CLB are indexed. For example, for the period July 1, 2023 to June 30, 2024, a child would receive CLB if their family had one to three children and an adjusted family income of $53,359 or less. The threshold rises as the family has more children.
CLB provides $500 in the first year of eligibility, plus $100 for each additional year of eligibility up to age 15, for children born in 2004 or later.
The autoenrollment plan will begin in 2028 for eligible kids born in 2024 and beyond. ESDC will deposit up to $800 in CLB into the plan, with $500 paid for the child’s first year of eligibility and $100 for the next three years.
The $800 of CLB would represent retroactive benefits for the years before the child’s fourth year that they would have received if an RESP had been established when the child was born, if they had been eligible for the CLB in each of those years.
Based on historical averages, the CLB payment at age four is $725 while average CLB payments over a beneficiary’s lifetime is $1,300.
In 2023, 70.2% of the CLB beneficiaries received a contribution in their RESPs with an average contribution of $1,329. The government expects average annual contributions to be lower for the CLB autoenrolled population.
At the end of 2023, there was a total of $78.9 billion held in RESPs.