Pooled Registered Pension Plans

Pooled Registered Pension Plans

Pension reform has been near the top of the political agenda for several years now. As the Boomers near retirement, it is clear a significant minority do not have the financial resources to adequately fund their retirement.


Many “solutions” have been floated; increase CPP funding, allow voluntary deposits to CPP, make employers contribute to a pension plan for every Canadian employee, etc. Not surprisingly, neither political parties, provinces, business leaders or unions can agree on what to do and who should pay for it.


Federal Finance Minister Jim Flaherty announced in mid-December 2010 that the federal and provincial governments have agreed in principal to the concept of a Pooled Registered Pension Plan (PRPP), which will be made available to the two-thirds of Canadian private sector employees who do not benefit from pension plans currently.


Many employers do not offer pension plans due to concerns about the cost and complexity of Defined Benefit plans. Defined Contribution Pension programs are a less complicated, lower cost solution but are not always attractive to smaller employers.


While the exact format of the PRPP has not been decided, the idea is that smaller firms could join the PRPP. The employer would make contributions into the PRPP and remit employee contributions also. As all the contributions are pooled, this would likely result in lower administrative fees and allow for portability of benefits when workers change jobs. Participation would be voluntary for both employers and employees.


“Voluntary participation” is the biggest weakness of this proposal. Less than one half of Canadian workers contribute to RRSP’s. If an individual can’t (or won’t) set up their own RRSP, will they contribute to this pension plan? Certainly, contributing through payroll deduction makes it easier, but it is clear that a PRPP is not the only solution to our problems.


The Canadian Retirement Income system is based on these pillars:


  • Government benefits – Old Age Security, Canada Pension Plan, Guaranteed Income Supplements
  • Employer Sponsored Retirement Plans – Registered Pension Plans, Group RRSP’s
  • Private savings – RRSP’s, personal savings, Tax Free Savings Account, etc.

It is important to remember that all three pillars are important. Improvements in the CPP plan and the new PRPP can be of benefit, but the importance of personal responsibility is saving for one’s own retirement must be the key element in a successful plan. With governments looking at clawing back OAS benefits and raising the age to be eligible for CPP, Canadians must have their own plan. Those who fail to save for retirement may pay a large price in the future.


Personal or company pension plans are easy to create with a trained, experienced advisor.


Contact us at ENCOMPASS Benefits & HR Solutions Inc. today to get started.