The draft claims that “moving forward with PRPPs will provide Canadians with a new low-cost accessible vehicle to meet their retirement objectives. This will be particularly beneficial to Canadians who do not have the benefit of an employer-sponsored pension plan, including the self-employed.”
A third party would take the role of managing the administrative aspects of the plan, which could be a benefit to small and medium-size employers. However, there are some tasks the employer would need to be responsible for, such as determining employer and employee contribution levels (if applicable), collecting and remitting contributions and informing the administrator of new members a termination of employment.
The investment industry reacted swiftly and favourably.
Canada's life and health insurance industry currently administers 70% of Canadian pension plans, so the in industry sees itself as a potential winner if the PRPP proposal is adopted.
Employers will be given the option to make contributions into the PRPP.
Jim Flaherty draws sharp political arrow from pension quiver
» The nose of the baby boom touched 65 last year, and many, many more will cross that threshold in the next decade. A frightening proportion have done too little to plan for their retirement, and are now faced with the realization that government programs will be nowhere near adequate to help them live the lifestyle they want.
» With interest rates stuck at record lows, even those who start pumping cash into retirement savings accounts today will be losing ground to taxes and inflation unless they take some risk with their money. For the last few decades Canadians have been getting more comfortable with risk products such as equities but the global stock market meltdown slashed RRSP account values and shredded the self confidence of many retail investors.
» Among the casualties of the stock market collapse have been large defined benefit pension plans operated by large corporations for their employees. Recent problems only accelerated a trend that had been under way for years. The “get a job after school, stay with a company for decades and retire with its pension” life arc is rare indeed, at least in the private sector.
The link to the plan can be seen here at Framework for Pooled Registered Pension Plans
- Voluntary - no obligation to contribute;
- Flexible - payment at any time during the plan year;
- Portable - people can join and contribute to the Plan regardless of where they reside; and
- Professionally managed - The return has averaged 8% since it started in 1986.
- Low investment management fees - The Saskatchewan Pension has management fees at about .75%. In the UK the plan fees are expected to be a low as .3%.
- Optional employer contributions - the CPP option would force employer into another payroll tax. It appears the employer can have an optional contribution in the PRPP. More dynamic thinking businesses will contribute to the PRPP as a way to retain and attract key employees.
- Personal Accounts - Today when a single person dies at age 66 his future CPP earnings are lost forever. With a personal account in the PRPP there will be a benefit to the estate of the deceased.
- Greater participation - This will give employers the opportunity to provide a retirement plan for employees without the high perceived costs of setting up a pension or savings plan.
The new TFSA has been receiving excellent reviews by investors an excellent tax efficient way to save money. So much so that at a Round Table with the Finance Minister of Ontario concerns were cited about the long term loss of tax revenue from the TFSA accounts compared to the RRSP.
The Finance Department has a chance to rectify this boo-boo and create a mandatory PRPP that is treated the same way as RRSP's and recoup some of the taxes loss when the pension funds are redeemed.