The Harper Government introduced today the much-anticipated Pooled Registered Pension Plans (PRPP) Act to address concerns over declining pension coverage for Canadians. The new plan is primarily intended to provide an efficient, effective and low cost retirement savings vehicle for the many Canadians without employer pension programs.
Minister of State for Finance Ted Menzies officially announced the PRPPs in Toronto, saying they will give small firms and their workers the opportunity to access a large privately administered pension plan for the first time. The PRPPs, however, are voluntary and will allow workers to opt out, and do not require firms to contribute.
While many Canadian workers do not have employer-sponsored pensions they do have access to tax assisted savings programs such as registered retirement savings plans (RRSPs) and Tax Free Savings Accounts (TFSA) through local financial institutions. Many taxpayers do not take full of advantage of these existing programs therefore it is questionable whether the PRPP will foster more saving.
“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.” – Benefits Canada
PRPPs are the outcome of several years of co-operation, research and consultations by federal and provincial 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,” Menzies said. “Essentially, you will be buying in bulk. This will leave you with more cash in your pocket when you retire.”
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 to their employees and that, therefore, prevented employees from participating in large-scale pension plans.
We will tell you more on these plans in weeks to come.