Low rates of saving
The picture darkens with declining rates of savings in Canada reported as dropping from a high of 45 per cent in 1997 to recent reports that in 2008 only 24 per cent of taxpayers age 25-64 made an RRSP contribution (as reported by CIBC World Markets Inc.).
Even when they have them, Biscott says many Canadians use RRSP funds as "glorified savings accounts, dipping into them for non-retirement reasons."
Under the PRPP program, funds are locked in. Employees (including the self-employed) can't take money out until retirement, although details are not yet finalized. This is the main distinction between PRPPs and existing group RRSPs, which some observers expect could be replaced by the new plan.
Employers would, in fact, be beneficiaries in such a switch, since they cannot deduct money they contribute to employee pooled RRSPs, but they would be able to do so under the pooled pension scheme.
Beware of fees and limitations
Biscott advises that before signing on for a PRPP, employees should understand any lock-in regulations and how much it will cost in administrative fees.
Thus far, the legislation covers only federally-regulated workplaces (such as banks, telecommunications and interprovincial transport) and sets a framework within which each province will need to pass its own regulations.
According to Biscott, Quebec has indicated it may include mandatory registration by employers in its legislation although this would not require them to make any financial contributions.
Minister Menzies has stated that CPP improvements have yet to be introduced because there is no provincial consensus on them. This is something that advocates for pension reform, such as the Canadian Association of Retired Persons (CARP), are urging the federal government to undertake as soon as possible.
"We should not be satisfied with the least of the options," CARP vice president Susan Eng stated in her association's response to the PRPP announcement.
In addition to low rates of participation for voluntary retirement and savings programs in Canada, pension expert Monica Townson notes in her recent study for the Canadian Centre for Policy Alternatives that average RRSP value of those about to retire (aged 55 to 64) is only $55,000.
"Canada does not need yet another voluntary tax-assisted retirement savings program," said Townson in her report. "It needs public pensions that provide all Canadians with a basic guarantee of adequate income that will protect their standard of living in retirement. Expanding the Canada Pension Plan would meet that objective."
Diana McLaren is a writer in Toronto.
|-- Posted: Jan. 6, 2012