Op-Ed: Election outcome clarifies retirement roadmap in Canada

November 12, 2011

Digital Journal

May 4, 2011

The recent election in Canada focused on retirement security for Canadians. One plan was for enhancing the Canada Pensions Plan (CPP) and the other plan called the PRPP was introduced in December by the current government.

The Government of Canada announced in mid December 2010 the new PRPP Pooled Registered Pension Plan. The Minister of Finance describes the plan as setting a new standard for Canadians, especially those, a majority, who are not saving enough for their retirement.
This plan is an alternative to other enhancements available for Canadians. The other major alternative proposed during the election was the enhancing of the Canadian Pension Plan (CPP). This was proposed by political parties in opposition to the current government. As a result, the recent election was fought over retirement for Canadians being one of the key election issues. The current government was re-elected to a majority. They will see the election as an endorsement of their retirement policy and proceed to implement the new PRPP plan.
The PRPP plan envisions assisting Canadians to save more and designed to meet the following criteria:
• Benefit from economies of scale.
• A plan that is easy to administer for the employer
• The advantages of a pooled plan and the management that it can offer
• Automatic enrollment to promote higher participation rates
• Linked to salary to provided increased contributions over time.
• Lower cost MER and IMF’s to allow Canadians to more quickly accumulate savings
The process leading up to the creation of the PRPP was based on consultations throughout Canada by the federal and provincial governments. There were numerous commissions, reports and studies produced that highlighted and debated the issue of retirement income for Canadians. In addition to the government work the major unions, think tanks and policy groups in Canada produced reports that went into the process of examining the future of retirement in Canada.
It was from this extended process that the federal government announced the PRPP plan. It is an enhancement of a plan in Saskatchewan called the Saskatchewan Pension Plan. This plan in place since 1986 coincidentally provided most of the features envisioned for the new PRPP. The SPP was unique in Canada but was not unique in the world. Several plans of this type have been implemented in other countries most notably, the KiwiSaver in New Zealand and the NEST program in the UK.
The Quebec government recently studied their Quebec Pension Plan (QPP) system which is the Quebec version of the CPP. They found that it is weak in two areas. Firstly the plan is not sustainable in its current form and major revision were made similar to the recent plan provisions made to the CPP, specifically penalties for early retirement and bonuses for delaying retirement. The secound major finding of the Quebec report is that the current system needs enhancement to provide sufficient retirement for most Canadians. For this they built on the PRPP with the creation of the VRSP regulations.
PRPP Plan Features
In Quebec the release of it’s guidelines for the new Voluntary Retirement Savings Plans or VRSP provides a clarification of the rules that will be implemented for the federal PRPP. The key provisions were left out by the federal government when they announced the broad structure of the PRPP.
The implications for the VRSP means employers willl have to offer one to their employees. A requirement will be deciding whether they contribute to the new plan and then automatically enroll all their employees eligible for a VRSP and withholding at source the amounts contributed by their employees.
For employees the VRSP provides on a voluntary basis the ability to make a contribution net of tax automatically deducted from salary into a investment vehicle or one of their choice. They will have the option to change the provisions inside the plan (ie. choice of investment, contribution rate, etc.) and if they do not wish to participate, opt out from the plan by notifying their employer.
Now the framework of the new plan is in place and it will be up to the federal government to make the legislative changes necessary to implement the PRPP. These include no longer requiring the existence of an employee-employer relation to contribute to a private pension plan; and withdrawing the requirement of a minimum employer contribution in a private pension plan for employees.
The last piece of the roadmap is to see how the nation’s banks, brokerages, life insurance companies, mutual fund firms in Canada will choose to participate in the new retirement plan.
Bill Tufts is the curator of Fair Pensions For All a blog dedicated to following pension news.

Read more: http://digitaljournal.com/article/306315#ixzz1dVZWj7Ci


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