Jonathan Chevreau looks at the federal government’s plan to introduce Pooled Registered Pension Plans (PRPPs):
This is a giant potential opportunity for the nation’s banks, mutual fund companies, insurance firms and a growing number of manufacturers of exchange-traded funds. Pension consultants, actuaries, financial planners and investment advisors will also see various business opportunities created as PRPPs catch on — primarily with small- and medium-sized businesses that never before offered its workers a pension plan. Mr. Menzies, the cabinet minister responsible for PRPPs, says he’s travelled the country consulting with the provinces.
“When the concept of the pooled RPP was shared with the provinces and territories they all came together to agree this makes sense.”
[. . .]
PRPPs will be (hopefully) low-cost defined contribution schemes run by the private sector where ultimate benefits will depend on how financial markets perform. The PRPPs would resemble the United States’ 401(k)s or Australia’s superannuation scheme.
They will be administered by financial institutions rather than employers, which is why Bay Street views them as a potential bonanza. As the “pooled” part of their name suggests, assets are co-mingled for investment purposes to keep down costs.
The original idea was that PRPPs would be mandatory for employers that don’t offer their own registered pension plan but Mr. Menzies says that decision would be up to the provinces. “We’re putting it out there that there is an option for the employer and for the employee. I’ve spoken to many small businesses that said ‘finally here’s a low-cost affordable plan I can enroll my employees in.’ It will be a retention and enticement tool.”
Employers won’t be forced to make contributions, but may choose to do so. Employees will be automatically enrolled at a base contribution rate, but they can opt out.
There will be two types of members: Employed and individuals. The latter include the self-employed and employees of organizations that do not offer PRPPs. Benefits are portable. Employers offering PRPPs can move to a new plan if they wish. There are fewer portability restrictions for individual members, making them convenient if they later change jobs and want to take their pension with them.
That portability is key: I’ve wondered for years why unions have not been hammering on that aspect in their negotiations with big employers (although unions generally pay most attention to the needs of current union members at the expense of both retired and future members). By the time you’ve worked at a company long enough to qualify for their pension scheme, you’re often locked in due to the lack of portability of your pension. If you leave the firm, voluntarily or not, you lose much of the potential return on the pension contributions you’ve already made (if you don’t lose them altogether).
This proposal may well solve much of that problem.
