Lack of flexibility a big problem with Scholarship RESP Plans
In The RESP Book (review here), Mike Holman points out the reasons why parents should avoid Scholarship / Pooled / Group RESP plans:
Very, Very expensive. There are large upfront sales fees paid to the salesperson, which are paid from your contributions, and very high ongoing fees. They have restrictive rules that can mean getting less money out of the plan if the child doesn’t go to school.
In my opinion, the biggest and loudest complaints arise from the lack of flexibility in Scholarship RESP plans. First, a lot of parents sign up without fully realizing that they are committing to contributing regularly to their child’s RESP and if they miss contributions all they might lose the Government grants, earnings on their contributions and initial enrollment fees. By contrast, a parent can choose to skip a contribution or two to a RESP held at a bank or discount broker and resume contributions at a later date.
Some parents stick with the contribution schedule until their child is in University and then find out that Group RESP rules are more restrictive than Government rules that deal with RESP withdrawals. One parent found out that his child does not qualify for payments because he switched to another program in the same University. Another found out that her child does not qualify for payments because of a strike at the University. Or heaven forbid, a child should fall ill and miss a significant chunk of the year.
Group RESPs would probably work well if life follows a carefully scripted plan. Unfortunately, stuff happens and then we find out that Group RESPs were not such a great idea after all.