Public Values

"New" Conservative pension plan offers little retirement security

PRPPs simply RRSPs "with a new coat of paint" — CD How Institute.

Brown: PRPPs provide few benefits to workers while a new source of profit for the financial industryOTTAWA, ON, August 27, 2012: Even the CD Howe Institute is now criticizing the Harper governments' proposed Pooled Registered Pension Plans (PRPPs) program.

In the report "Pooled Registered Pension Plans: Pension Savior — or a New Tax on the Poor?", authors James Pierlot and Alexandre Laurin find that the PRPPs program will do little to help most Canadians prepare for retirement.

"As currently proposed, PRPPs present only the appearance of reform because they are for the most part a re-release of an existing retirement savings vehicle — RRSPs — with a new coat of paint," said James Pierlot, a pension specialist and member of the Pension Policy Council of the CD Howe Institute.

  "We already have a very expensive voluntary program in Canada — RRSPs — which have been a bonanza for the financial industry."

Criticism of PRPPs is familiar. While the CD Howe suggests minor revisions to the proposal, others such as the National Union of Public and General Employees (NUPGE) suggest scrapping the plan and looking for improvements to the Canada Pension Plan (CPP).

Larry Brown, Secretary-Treasurer of NUPGE, said that PRPPs "will provide little benefit to the 60 percent of Canadian workers without a pension plan but will provide a new source of profit for the financial industry."

What is to be established is a national defined contribution plan available to all workers and administered by the financial services industry. The plan allows employees to opt out and will not require employers to contribute. Provincial enabling legislation will also need to be introduced to make the plan fully operational.

"We already have a very expensive voluntary program in Canada — Registered Retirement Savings Plans (RRSPs) — which costs $18 billion a year in tax subsidies, more than half of what the federal government spends on Old Age Security and the Guaranteed Income Supplement. Only 30 percent of Canadians contribute to RRSPs and 89 percent of contributions come from the highest earning 11 percent of tax filers," said Brown.

"Meanwhile, the RRSPs program has been a bonanza for the financial industry, charging an average administration fee of 2.5 percent, the highest of 22 countries."

Brown points out that PRPPs fails to match the clear and demonstrable benefits of CPP expansion.

"As a mechanism for addressing the deficiencies in Canada's retirement income system, PRPPs will not have the same impact on total retirement savings, and the cost to individual contributors will be far higher. PRPPs will not provide a secure retirement income at a set replacement rate of pre-retirement earnings. Benefits will be entirely determined by uncertain investment returns."

Related individuals, organizations and significant events
Read the report: Pooled Registered Pension Plans: Pension Savior — or a New Tax on the Poor?

More info: Pension Breakdown: How the finance ministers bungled pension reform

Links and sources
  CD Howe Institute criticizes feds' Pooled Registered Pension Plans

Posted: September 29, 2012

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