Recently thought to be dead on arrival, Quebec’s Voluntary Retirement Savings Plan (VRSP) could be resurrected by the Parti Quebecois as early as this coming spring, offering an estimated two million Quebecers a retirement-savings alternative to the traditional RRSP.
The pension proposal, which is seen by many as a precursor to the adoption of the comparable PRPP (Pooled Registered Pension Plan) in other provinces, was specifically referenced in Quebec’s 2013 budget, noting that the government “will table, by the spring of 2013, a bill to implement the new voluntary retirement savings plans”.
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Originally scheduled for enactment in the spring of 2012 via Bill 80, the VRSP legislation was delayed by the province’s election call and subsequent ousting of the governing Liberal Party. However, the new Parti Québécois government is now promising to revisit the VRSP once it has the opportunity to take into account the recommendations of a an expert committee chaired by former Dejardins CEO Alban D’Amours, which could result in modifications to the originally proposed Bill 80.
“Given the content of the documentation related to the Budget and, more specifically, the economic and budgetary orientation of the government, they may very well come up with something very similar to Bill 80 that the previous government came up with,” says Renée Laflamme, vice-president of group savings and retirement at Quebec-based insurance company Industrial Alliance.
Implementation of the bill will ultimately mean it will become mandatory for employers in Quebec with five employees or more to offer the VRSP to their staff (who will then have the option to opt out if they so choose). The VRSP and PRPP models allow pension-less workers to contribute set amounts toward pooled pensions that will be managed by institutional fund managers who would otherwise be inaccessible to individual investors. The pooled nature of the VRSP means management fees would be shared and that pension administrators would have the fiduciary responsibility of counselling workers on their investment options.
While plan sponsors and business-community advocates say they would like to see the VRSP become law, there is little consensus on whether the offering should be mandatory to employers.
Martine Hébert, vice-president of the Canadian Federation of Independent Business’ Quebec region, says her organization would prefer the VRSP was not made mandatory so that employers would not have be forced to take on an additional administrative burden if they did not want to.
“We support the VRSP under two conditions: that it would be voluntary to employers to offer it, and also that the participation of the employees would be voluntary,” she says.
But Ms. Laflamme says the mandatory nature of the VRSP is a precondition of its accessibility to employers, noting that an opt-in option would make the VRSP administratively complex and therefore more costly to administer, and therefore more of a headache for those who choose to use it. In addition, allowing employers to opt out would reduce the total volume of contributions and, in turn, increase the cost.
“It supports the fact that we want to have a product of low cost, which will be supported by volume,” says Ms. Laflamme.
Proponents of the PRPP and VRSP models have argued that making the pooled pensions voluntary essentially renders them no more effective than RRSPs, believing few employers would take on the additional administrative burden, leaving the pool relatively small and no more advantageous to workers than the traditional RRSPs.
However, Ms. Hébert says that a poll conducted of CFIB members regarding the PRPP and VRSP shows one-third of business owners would voluntarily adopt the pooled pensions while one-third were unsure and the remainder opposed – numbers the business-community advocate says are better than expected.
“Usually when our members don’t know exactly what it’s going to mean, they tend to say ‘no,’” she says, noting that many small business owners see the pension proposal as a means of competing with big business to attract more human capital.
Ms. Hébert also notes that the original legislation put in place cost-cutting mechanisms such as limits on the number of times employees could change their contribution rates, which would reduce the administrative burden to insurance companies.
With the growing rate of household debt across Canada and the scarcity of personal retirement savings among Canadians, the federal government is hoping the provinces act sooner rather than later to provide a retirement-savings alternative to pension-less workers.
While Quebec was quick to act on the federal government’s original PRPP proposal with the development of the VRSP, there is little indication as to whether other provinces will follow suit. Policy experts have said the adoption of a universally acceptable PRPP across all provinces is an unlikely scenario. Thus far, no other province has come close to legislating pooled pensions.
Yet, insurance industry representatives who stand to profit substantially from the adoption of pooled pensions and the business-community advocates looking for a means to offer greater retirement security to pension-less Canadians remain hopeful something will materialize in the near future.
“I had some discussions with… some federal and provincial legislators, and I think there’s some willingness to go ahead with some legislation in other provinces,” says Ms. Hébert. “Some want to wait for budgets and there are some legislative agendas to consider, as well.”
Thus far, however, there is little movement on the adoption of pooled pensions beyond the borders of Canada’s francophone province. The success of the VRSP may help turn the tide, but given that VRSP legislation won’t be put into practice until 2013 at the earliest (and the benefits and challenges won’t be evident until at least two years later), it’s difficult to say how soon other provinces will follow suit.