Alberta government, CFIB in favour
Several groups have come out in support of the federal government's proposal for pooled pension plans. The defined contribution plans would be administered by a third party, likely a financial institution, and allow small businesses that otherwise could not afford their own plan to offer a retirement savings vehicle to employees. Self-employed workers would also have easier access to a private pension plan under the proposal.
The Alberta government welcomes the news, having worked on this type of private sector pension innovation with British Columbia for three years, said Alberta’s Minister of Finance and Enterprise Ted Morton.
“The one stumbling block for broader implementation had been a lack of interest in Ottawa,” he said. “This is the type of targeted solution Alberta has been advocating to address concerns that many middle-income Canadians are not saving enough for their retirement, and we are pleased the federal government is now on board. Ottawa’s previous proposed solution — expanding the Canada Pension Plan — was a shotgun approach that would have been ineffective and economically damaging.
Pooled pension plans provide a simple, low-cost, effective way of improving pension coverage for employees of small and medium businesses and the self-employed, said Morton.
“Allowing private sector providers to offer and manage pooled pension plans on behalf of multiple employers will significantly reduce costs to businesses as well as provide the financial expertise to better manage the investments and the investment risks.”
And it is encouraging the federal government is no longer talking about expanding the CPP, said Morton, as it would be a one-size-fits-all approach that would not adequately help the people with the greatest need.
The Great-West Life Assurance Company also said it supports the proposed framework for pooled registered pension plans (PRPPs).
"This innovative approach would increase the availability of pension plans to working Canadians, especially those working for smaller companies, and help ensure that they save adequately and effectively for their retirement," said Bill Kyle, executive vice-president of wealth management at Great-West Life.
The company, which administers more than 17,000 group retirement plans, gave several reasons for its endorsement:
• The PRPP provides a plan structure to pool smaller employers’ assets together to allow the plan to benefit from economies of scale.
• The proposed PRPP structure makes it administratively attractive to the sponsoring employer as most of the complex pension administration will be performed by the financial institution providing the plan.
• Effective retirement savings requires that employees keep their contributions in the plan so they can benefit from tax-effective compound growth. The PRPP proposes using a pension structure that allows locking in, which will help ensure monies set aside remain in the plan for retirement.
• The auto-enrolment feature proposed under the PRPP will promote higher retirement savings participation rates among the employees of these plans.
• The auto-escalation feature proposed under the PRPP will result in higher average retirement savings account balances among the employees of these plans.
Also in favour is the Canadian Bankers Association (CBA), saying the proposal is “a great holiday gift for the self-employed, small business employees and other Canadians who don't currently have a pension plan at work.”
This proposal will create greater access to pension plans in Canada, making it easier for employees to save for their retirement, said Nancy Hughes Anthony, president and CEO of the CBA.
And the Canadian Federation of Independent Business (CFIB) was pleased to see the move away from focusing on raising CPP benefits and premiums.
"Small businesses will be pleased to learn that finance ministers are concentrating on practical steps to improve retirement income vehicles for employees and employers, rather than approving an increase in mandatory CPP premiums," said CFIB president Catherine Swift. "The framework for pooled retirement pension plans (PRPPs) has significant potential to improve the mix of retirement savings options for smaller firms and self-employed entrepreneurs."
However, the CFIB is opposed to any consideration that participation by employers be mandatory.
"Increasing the number and flexibility of retirement savings options for employers is important, but the chief roadblock for small businesses to offer such plans is affordability," said Swift. "Considering tax incentives and removing tax disincentives for retirement savings tools is equally important to help SMEs expand coverage for employees," she noted.
