Flaherty releases draft retirement funding proposal

Only days before federal and provincial finance ministers converge in Kananaskis, Alta., Finance Minister Jim Flaherty has released a draft framework for pooled registered pension plans (PRPPs).

The draft claims that “moving forward with PRPPs will provide Canadians with a new low-cost accessible vehicle to meet their retirement objectives. This will be particularly beneficial to Canadians who do not have the benefit of an employer-sponsored pension plan, including the self-employed.”

A third party would take the role of managing the administrative aspects of the plan, which could be a benefit to small and medium-size employers. However, there are some tasks the employer would need to be responsible for, such as determining employer and employee contribution levels (if applicable), collecting and remitting contributions and informing the administrator of new members a termination of employment.

The investment industry reacted swiftly and favourably.

“Pooled Registered Pension Plans fill an identified gap in retirement savings options by providing small companies and self-employed Canadians with an alternative retirement savings vehicle,” said Ian Russell, president and CEO of the Investment Industry Association of Canada. “PRPPs offer the potential for economies of scale to lower administration costs and management fees.”

The IIAC recommends that financial advisors registered with Investment Industry Regulatory Organization of Canada (IIROC) should be eligible to serve as PRPP administrators, as this would broaden the choice for Canadian businesses and self-employed individuals.

“Registered investment dealers in Canada are effectively regulated, subject to high standards of proficiency, conduct, operation and governance. Investment dealers already administer registered retirement savings products, such as RRSPs, for their clients,” said Russell. “Investment dealers should be permitted to administer PRPPs, subject to appropriate custodial arrangements with regulated trust companies, as for other registered retirement products.”

The IIAC points out that the proposed disclosure and portability through harmonized rules make the PRPP very appealing.

The Canadian Life and Health Insurance Association also welcomed Flaherty’s proposal, saying that half of private sector workers have no access to a workplace pension plan.

“We believe this is a major step in the right direction, and we are hopeful that all provincial and territorial governments will be supportive of this initiative,” said Frank Swedlove, president of the CLHIA.

Canada’s life and health insurance industry currently administers 70% of Canadian pension plans, so the in industry sees itself as a potential winner if the PRPP proposal is adopted.

Standard Life joined the chorus of approval, saying that PRPPs would allow small and medium-sized businesses to provide retirement plans for their staff.

“Pooled Registered Pension Plans could be a milestone to improve access to pension arrangements and encourage Canadians to save for retirement,” said Joseph Iannicelli, president and CEO of Standard Life. “Employers and employees would benefit from the expertise and experience of Canadian financial institutions in the role of administrators of PRPPs. The industry is highly regulated in matters of solvency and governance. As a result, Standard Life is ready to take on the additional role that PRPPs would bring.”

Another obvious beneficiary of the program would be the investment funds industry. The Investment Funds Institute of Canada (IFIC) called the proposal “an incremental step forward in the discussions aimed at reforming Canada’s retirement income system.”

The group supports the proposal but also recommends that the framework “encourage the participation of the broadest range of investment providers, in addition to trust and insurance companies, that meet the proposed or equivalent standards. This will ensure strong competition and innovation among providers.”

Read more about pension reform on BenefitsCanada.com.