The federal government this morning introduced the much-anticipated Pooled Registered Pension Plans (PRPP) Act to address concerns over declining pension coverage for Canadians.
The Act incorporates changes to Canada’s pension landscape that will make saving for retirement easier for millions of Canadians.
“Today marks a major milestone in our efforts to ensure the ongoing strength of Canada’s retirement income system by providing a pension option for the many workers…who currently do not participate in a company pension plan,” said Ted Menzies, Minister of State (Finance). “Incredibly, just over 60% of Canadians do not have a workplace pension plan. Canadians work hard to realize their retirement dreams, and PRPPs will offer them a new, low-cost and accessible pension option to help meet their goals.”
PRPPs are the outcome of several years of cooperation, research and consultations by Canada’s finance ministers on the best ways to ensure the long-term strength of Canada’s retirement income system.
“If you invest in a PRPP you will benefit from lower investment management costs associated with the large scale of these funds,” said Minister Menzies. “Essentially, you will be buying in bulk. This will leave you with more cash in your pocket when you retire.”
“It’s a great innovation that the government is pushing right now. Many people don’t have access to a structured pension plan in the workplace, and simplifying the rules will help everybody,” says Claude Leblanc, vice-president, business development, group savings and retirement at Standard Life.
PRPPs are a new type of broad-based privately administered pension arrangement. The plan addresses gaps in the existing retirement income system by providing a new, accessible, large-scale and low-cost DC pension option to employers, employees and the self-employed.
This provides an attractive option to small business owners and their employees, who will not only have access to a low-cost pension plan with lower administrative costs, but will also have professional administrators working to ensure that funds are invested in the best interests of plan members.
These features will remove barriers that have kept many employers from offering pension plans or matching employees’ RRSP contributions.
“With RRSPs, the employer contribution is not deductible as an expense,” says Leblanc. “That means, when an employer gives $1,000 away to an employee’s [RRSP], they have to pay CPP, QPP, Workers’ Compensation and all those other payroll taxes that apply. When it’s a pension plan, the contribution is fully deductible. It’s cheaper and more effective for an employer to contribute under a pension plan than a group RRSP.”
However, not everyone is thrilled with the new PRPP model, with some critics saying it does nothing to help Canadians’ need for greater retirement security and the feds should have instead expanded the CPP.
“It’s really nothing more than a piecemeal approach that rewards banks, insurance companies and mutual fund companies instead of offering real retirement security options for everyone,” says Ken Georgett, president of the Canadian Labour Congress. “Every credible piece of information that we have seen indicates that PRPPs would be far inferior to an expanded Canada Pension Plan in providing retirement security for Canadians. This is an ideological move that flies in the face of common sense and good research.”
Provincial enabling legislation will need to be introduced for the framework to become fully operational. In addition, the tax rules for PRPPs, which will apply to both federally and provincially regulated PRPPs, are being developed.
“The biggest challenge we will face is to harmonize all the rules and laws that apply,” says Leblanc. “Each province will have to look at their labour laws to make sure they can align eligibility rules and pension rules.”