On April 28, Susan Eng, VP of Advocacy at CARP presented before the Ontario Government Standing Committee on Social Policy concerning Bill 57, an Act to create a framework for Pooled Registered Pension Plans (PRPPs).During the presentation, Eng expressed how PRPPs could help Canadians save for retirement if PRPPs are designed to resemble closely key features of the Canadian Pension Plan (CPP).
To achieve this, Eng reiterated CARP’s longstanding position that PRPPs should require mandatory enrolment and employer contributions to create a large enough fund that can produce economies of scale and in turn generate higher returnsand achieving lower administrative costs. CARP also advocated that PRPPs should be portable across jobs, and provide a guaranteed, targeted income that can be depended on during retirement. CARP members see PRPPs as an improvement on the status quo, but acknowledge that as designed currently PRPPs are only a small improvement over existing private savings vehicles and may not go far enough toward helping Canadians prepare and save for their own retirement.
PRPPs were introduced in 2010 by the federal government in response to the retirementsavings gap and although the federal government at the time committed to considering a “modest” CPP enhancement, in December of 2013 the federal government gave its final refusal to act on CPP enhancement, leaving most Canadians with few safe, robust ways to save for their own retirement.
CARP has submitted papers and participated in consultations about how PRPP legislation should be designed to achieve real retirement savings outcomes for Canadians. According to a CARP Poll, when members were asked about the ideal design for PRPPs, they showed a strong preference for PRPPs to resemble the structure of the CPP, with regulated fees, employer contributions and a guaranteed payout.
When asked by MPP Laura Albanese, what the mandatory minimum employer contributions should be, Eng said that based on expert opinion – experts say you need about 60% to 70% of pre-retirement income to retire without a drop in living standard – in order to meet the savings goal required to fund retirement the arithmetic informs that 18% of individual salary should be saved. “Between where we are today, and where those people are contributing- some 9% through the CPP up to a certain maximum- we have a ways to go before we match that,” said Eng. As designed currently, PRPPs do not have as much to offer for retirement saving, especially when compared to the CPP, which is a nationally portable plan, requires mandatory employer and employee contributions, is indexed to inflation, operates at low fees, and pays a targeted, reliable stream of income in retirement.
If designed correctly, the PRPPs could help more people save for retirement. But even then, they would just be another private savings option that won’t alone solve the pension savings gap. CARP will be advocating for legislation that would make PRPPs have the key features that make the CPP so reliable and robust.
May 4, 2015