Signs advertise RRSPs and other investments in downtown Toronto.Peter Power/The Globe and Mail
The Harper government's push to encourage Canadians to save more for retirement officially launches Thursday with new legislation to create pooled registered pension plans.
The savings vehicles are primarily aimed at employees and employers in small businesses, as well as the self-employed.
Ted Menzies, the Minister of State for Finance, is scheduled to make an announcement Thursday morning in Toronto.
The PRPP concept was endorsed by federal and provincial finance ministers last December and officials have since been working on the details and preparing legislation.
Some provinces – as well as the federal NDP and Liberal parties, plus the Canadian Labour Congress – have advocated that it would be better to focus on increasing premiums and benefits to the existing Canada Pension Plan because its contributions are mandatory.
Critics note that Canadians already have access to voluntary pension plans, such as registered retirement savings plans, yet many don't contribute.
Ottawa is expected to counter concerns about participation by including measures in the legislation that would allow employers to automatically enroll new employees into the program. Employees would then have the choice to opt out, but auto-enrolment is expected to boost participation.
Employers are not expected to be forced to contribute to their employee pensions if they participate in PRPPs.
The government argues the PRPP system improves on the status quo because it will allow employees at small businesses to save for retirement using payroll deductions and to access a large-scale pension fund at a lower cost than would otherwise be the case.
Private-sector financial institutions such as banks, trust and insurance companies could apply to manage the PRPP funds and keep track of individual accounts. Under the plan, the government promises to use regulation to ensure the private firms keep their fees low.
During pre-budget hearings at the House of Commons finance committee last month, Canadian Labour Congress economist Andrew Jackson argued that the flaw of PRPP's when compared to the government-run Canada Pension Plan is that some PRPP investor money is lost to bank profits.
"The Canada Pension Plan is an extremely well-run pension plan at very low cost, and we'd certainly be very concerned that while PRPPs may have a somewhat lower cost structure than individual RRSPs, they're still going to be higher cost [than the CPP]" he said. "I hate to take a shot, but there is a considerable amount of profit earned in the financial sector from running these plans, and we can really reduce that through a public-sector alternative."
At the same meeting, Terry Campbell, president of the Canadian Bankers Association, praised the government's plan.
"We believe these plans will provide Canadians with a simple, efficient, and cost-effective opportunity to save for retirement," he said.
"A key benefit of this approach is that it builds on the existing expertise and the existing infrastructure in the private sector. We believe that banks have the necessary expertise and infrastructure to offer PRPPs."
When Finance Minister Jim Flaherty later appeared before that same committee on Nov. 1, he indicated that Ottawa and the provinces have not closed the door on expanding the existing CPP, but that the state of the economy is a factor.
"The reality is that we've gone through some economic slowness, and the concern was, and remains, that this would not be the best time to impose an additional burden on business by requiring higher CPP premiums," Mr. Flaherty said in response to a question from the NDP. "This is an issue we continue to discuss."
Bill Curry