Chevreau: Pooled pensions make sense — in principle

Employers still have a major role. If they choose to offer PRPPs, they can make “direct employer contributions to the plan,” the draft document states, “along with remitting contributions from the employee.”

That doesn’t sound more onerous than the payroll function firms of all sizes must in any case provide. Doug Carroll, vice president of tax at Invesco Trimark Ltd. says this may help investors save who otherwise might not: “Automatic payroll deductions keep cash out of sight and out of mind,” while pre-tax payroll deductions let the gross amount of contributions be invested every pay period. By contrast, lump-sum RRSP deposits are often made with after-tax dollars after tax returns are filed.

The biggest drawback is PRPPs are voluntary for both employers and employees. Pension consultant Keith Ambachtsheer says “both empirical evidence and common sense tell us the purely ‘voluntary’ uptake of these PRPs will be minimal.” He views the initiative as less than serious reform and more a “PR exercise/financial services sector business opportunity.”

Susan Eng, vice president of advocacy at CARP says it’s is better than nothing because it does “a few good things.” Large pooled funds provide better returns than individuals can achieve on their own and the massive marketing likely to accompany it may encourage more Canadians to save. But she’s skeptical banks and insurance companies will keep fees as low as they suggest, or that they’ll truly do what’s best for clients (as required by a fiduciary standard).

Ottawa previously resisted such plans, Eng says, because RPPs cost the treasury tax revenue. But the more Canadians save inside such plans, the less they can contribute to RRSPs so to some extent it’s a wash.

Add the PRPP to either an existing or expanded CPP as well as the new Tax Free Savings Accounts launched in 2009 and Canadians who fail to save for retirement will have only one party to blame: Themselves.

© Financial Post

Keywords: PRPP, pension reform, CPP