The federal government introduced legislation Thursday to create its new retirement savings vehicle, pooled registered pension plans.
The new PRPPs are intended to fill the gap between traditional employer-sponsored pension plans, and private savings plans, such as RRSPs — usage of these sorts of plans has been dwindling in recent years.
PRPPs will provide a new defined contribution plan option for employers, particularly small businesses and the self-employed, who currently don’t have access to workplace pensions. In December 2010, the federal, provincial and territorial finance ministers agreed to introduce the new plans as a way of boosting retirement savings amid concerns that many Canadians are not saving enough.
In addition to the federal legislation, the provinces will also need to introduce their own enabling legislation.
New federal tax rules for PRPPs, which are being developed by the government, are to be released in draft form shortly. The PRPP tax rules will apply to both federally and provincially regulated plans.
The new private pension vehicle is being pursued instead of bolstering public retirement savings, such as expanding the Canada Pension Plan, as some have advocated. While the various governments have agreed to continue reviewing options to improve the CPP, some employers warned that increasing mandatory deductions amid a weak economic recovery could hurt that recovery and employment levels.
“Today marks a major milestone in our efforts to ensure the ongoing strength of Canada’s retirement income system by providing a pension option for the many workers… who currently do not participate in a company pension plan,” said Ted Menzies, minister of state (finance), upon introducing the legislation.
“Incredibly, just over 60% of Canadians do not have a workplace pension plan. Canadians work hard to realize their retirement dreams, and PRPPs will offer them a new, low-cost and accessible pension option to help meet their goals,” he added.
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Industry reaction to the government’s announcement was positive.
“PRPPs will make it possible for small and medium-sized businesses to offer to their employees registered pension plans that will be simple to administer. As well, PRPPs will allow self-employed individuals to participate in private sector pension plans for the first time,” said Terry Campbell, Canadian Bankers Association president.
The insurance industry also applauded the tabling of federal legislation, and called on provincial governments to introduce their own PRPP legislation as soon as possible.
“This is great news for Canadian workers,” said Frank Swedlove, president of the Canadian Life and Health Insurance Association, referring to the new federal bill.
“Millions of Canadians don’t have a pension plan at work, especially those working for small and medium-sized businesses, and the self-employed. PRPPs will give them the opportunity to save in the workplace for their retirement through low-cost plans previously only available to large businesses. And they will be attractive to employers because they cut out almost all of the administrative burden and costs that employers often associate with pension plans.”