Canada Proceeds With New Pension Vehicle
Monday, November 21, 2011

Changes to Canada's pensions system mark a major milestone in the government's efforts to ensure its continued strength, the government has said.

Introducing legislation to implement the federal portion of the new Pooled Registered Pension Plan (PRPP) framework, Christian Paradis, Minister of Industry, and Ted Menzies, Minister of State (Finance), said saving for retirement will now become easier for millions of Canadians.

The new framework is considered the most effective way to reach those individuals failing to save enough for their retirement. In December, 2010, Canada’s Finance Ministers agreed on a framework for defined contribution PRPPs, which they believed will provide Canadians with a new, low-cost, efficiently managed, portable and accessible savings vehicle that will help them meet their retirement objectives.

PRPP members will “pool” their pensions through their administrators, with the aim that costs will be lower. In addition, by providing a low-cost retirement savings opportunity for employees as well as the self-employed, the government aims to ensure PRPPs play a key role in improving the range of retirement savings options available. In particular, small business owners and their employees are outlined as the target audience, with access to a private pension plan now available for the first time.

The tax rules for PRPPs are currently being developed by the government and will be released in draft for comment shortly. They will apply to both federally and provincially regulated PRPPs.

Menzies commented: “Incredibly, just over 60% of Canadians do not have a workplace pension plan. Canadians work hard to realize their retirement dreams, and PRPPs will offer them a new, low-cost and accessible pension option to help meet their goals...If you invest in a PRPP you will benefit from lower investment management costs associated with the large scale of these funds. Essentially, you will be buying in bulk. This will leave you with more cash in your pocket when you retire.”

Paradis added: “Canadians want their governments to act on their priorities and deliver results on a timely basis, and the PRPP is a prime example of what we can accomplish for Canadians when governments work together. The government of Canada is therefore confident that the provincial side of the framework will soon be in place to help Canadians reach their retirement objectives.”

Provincial enabling legislation will need to be introduced for the framework to become fully operational.