"As a mechanism for addressing the deficiencies in Canada’s retirement income system, PRPPs are greatly inferior to an expanded CPP."
The federal government’s proposed Pooled Registered Pension Plans (PRPPs) fail to match the clear and demonstrable benefits of Canada Pension Plan (CPP) expansion, according to a recent research paper prepared by the Canadian Labour Congress (CLC).
The purpose of the research paper was to critically examine the proposed PRPPs and to compare the option to expansion of the CPP.
In December 2010, just prior to a meeting of federal and provincial-territorial finance ministers in Kananaskis, Alberta, the federal Finance Minister, Jim Flaherty, unveiled his department’s perferred PRPP option to deal with Canada’s retirement scurity crisis. PRPP will be a a pooled workplace pension plan administered by financial institutions. The proposal has been entusiastically promoted by the Canadian Life and Health Insurance Association and as well as the private financial services sector, the primary bebeficiaries of PRPPs.
The CLC reserch paper notes that unlike the CPP (where employers pay one half of the premium cost), PRPPs will not require contributions from employers. It points out that unlike the CPP and defined benefit (DB) plans, PRPPs will not provide the following:
- a secure retirement income at a set replacement rate of pre-retirement earnings – benefits will be entirely determined by uncertain investment returns.
- protection from inflation,
- a guarnteed lifetime benefit – conversion of a PRPP into a lifetime, indexed annuity at retirement might be possible, but this would be at a very high cost.
- integration with the great majority of existing workplace pension plans.
The research paper point out that PRPPs will do nothing to make the pensions of members of existing defined benefit (DB) workplace plans more secure. Indeed, they may provide employers with a greater incentive to shift from defined benefit (DB) to defined contribution (DC) plans.
While large pooled plans could have a somewhat lower cost than RRSPs or individual defined contribution workplace pension plans, the research paper points out management and operating expenses of PRPPs will be significantly higher than the low costs of the CPP Investment Board.
The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 340,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. NUPGE