Government Introduces Retirement Saving Opportunities for Canadians

We all want to ensure we have a comfortable retirement. Fortunately, here in Canada, we have one of the most respected retirement income systems in the world. It is seen as a model, which strives to reduce poverty among Canadian seniors and provides high levels of income replacement to retired workers. Our Government has worked hard to continue to strengthen this system, especially in response to economic uncertainty following the 2008 financial crisis. One of the ways our Government set out to strengthen this system was the recent introduction of the Pooled Registered Pension Plans (PRPPs) Act, which makes saving for retirement easier for millions of Canadians.

Since 2006, our Government has made many efforts and introduced several initiatives to enhance some of the existing structures of Canada’s retirement income system, such as: introducing a number of changes to the framework for federally regulated Registered Pension Plans (RPPs); the completion of the triennial review of the Canada Pension Plan (CPP); and most recently, Budget 2011 included a Guaranteed Income Supplement (GIS) top-up benefit for Canada’s most vulnerable seniors. Our Government also introduced several improvements to the tax rules for RPPs and RRSPs to support work and saving by older Canadians and to provide sponsors of defined benefit pension plans with more funding flexibility.

Despite all of these many improvements, concerns regarding retirement income adequacy and pension coverage were raised during the 2008 financial crisis. Several expert reports were performed which examined the effectiveness of provincial legislative frameworks for employer-sponsored RPPs. Our Government swiftly reacted by working with the provinces and territories to examine the question of retirement income adequacy in Canada. The joint federal-provincial working group concluded that overall, the Canadian retirement income system is performing well and providing Canadians with an adequate standard of living; however, the report from the group also found that some Canadian households, especially modest- and middle-income households, may be at risk of undersaving for retirement.

Working collaboratively with the provinces and territories, our Government launched online consultations and a series of cross-country roundtable discussions to gather input directly from Canadians on strengthening Canada’s retirement income system. The result of this research was the PPRP framework and the announcement of the initiative at the Finance Ministers Meeting in December 2010.

On November 17, 2011, the legislation implementing the federal portion of the PRPP framework was introduced in Parliament by our Government. The provinces will also need to introduce their own enabling legislation. Under this proposed federal legislation, PRPPs are a new kind of defined contribution pension plan that will be available to employers, employees, and the self-employed. PRPPs will improve the range of retirement saving options to Canadians by:

• providing a new accessible, straightforward and administratively low-cost retirement option for employers to offer their employees;
• allowing individuals who currently may not participate in a pension plan, such as the self-employed and employees of companies that do not offer a pension plan, to make use of this new type of pension plan;
• enabling more people to benefit from the lower investment management costs that result from membership in a large, pooled pension plan;
• allowing for your accumulated benefits to move with you from job to job; and
• ensuring that funds are invested in the best interest of plan members.

PRPPs will be an innovative new pension plan designed to address the lack of low-cost, large scale retirement savings options available to many Canadians. In addition, many Canadians can only access a workplace pension plan if their employers offer one. Many employers do not want the legal or administrative burden of offering a pension plan. As a result, over 60 per cent of Canadians do not have a workplace pension. By pooling pension savings, PRPPs will offer Canadians greater purchasing power. Basically, Canadians will be able to buy in bulk. Achieving lower prices than would otherwise be available, means they will get greater returns on their savings and more money will be left in their pockets when they retire. PRPPs are also intended to be largely harmonized from province to province –which also lowers administrative costs.

Our Government hopes that by providing Canadians with innovative options in planning for their retirement, more Canadians will start saving and more businesses will play a role in assisting new Canadian savers start off on the right foot.