Boosting Canada Pension Plan benefits would do so much more to help retirees who are short of retirement cash than the federal government's proposal to create a new pooled registered pension plan (PRPP), a pension expert says in a new report.
Monica Townson, an independent social policy consultant who has written several books on pensions, says that the voluntary PRPP won't help Canadians save more for retirement since they have yet to put the maximum amount they're allowed into registered retirement savings plans or tax-free savings accounts.
"No pension will be guaranteed by this program. In effect, it is yet another voluntary savings scheme that will do nothing to address the pension crisis. Since very few people take advantage of existing voluntary retirement savings schemes, it is not clear why officials are claiming the proposed PRPPs will prove more attractive than the existing programs," she writes in her report Pension Breakdown: How the Finance Ministers bungled pension reform for the Canadian Centre for Policy Alternatives.
Instead, Ms. Townson, and others such as the Canadian Labour Congress, suggest that a more effective strategy would be to increase the pension retirees would be entitled to from the Canada Pension Plan to about 50 per cent of pensionable earnings, up to a set limit, from 25 per cent. This would cover all workers, including those who are self-employed, and wouldn't be voluntary, she stresses. While any CPP increases would also require a boost in CPP contributions from employees, that would be phased in over time, she writes.
PRPP promises low fees
Legislation for the pooled registered pension plan was introduced in November. It would be a voluntary savings plan for Canadian workers offered by their employers, who would not make contributions. Workers would sign up for the program and it would pool their contributions into a fund that would be run by insurance companies and other financial institutions who would charge fees to manage it. The government has suggested that PRPP fees would be lower than the fees individual investors pay, since their resources are pooled.
"But, of course, there is no guarantee of lower fees, nor is there any certainty that this would be a big selling point for the plans. It's also worth noting that there is no evidence people are not saving through RRSPs because of high management fees," Ms. Townson says.
"Canada does not need yet another voluntary tax-assisted retirement savings program. It needs public pensions that provide all Canadians with a basic guarantee of adequate income that will protect their standard of living in retirement. Expanding the Canada Pension Plan would meet this objective," she says.
Increasing CPP benefits would also have the advantage of being indexed for inflation and is portable from one job to another, she notes.
The government has also said it's looking at expanding the existing CPP, but is worried about adding costs to payrolls at this uncertain economic time.
Too late to help boomers
The PRPP proposal is also coming too late to aid the baby-boom generation, Ms. Townson says. It's estimated about one-third of Canadians between the age of 45 and 64 will end up with a retirement income that falls short of their needs.
As of 2009, just 39 per cent of employees were covered by a workplace pension plan, and only 31 per cent of those eligible to contribute to an RRSP actually did so.
"The reality is that 11 million Canadian workers don't have a workplace pension plan. And public pension plans – Old Age Security and the Canada Pension Plan – that everyone has, don't provide enough for people to live on in retirement," Townson says.