OTTAWA (Reuters) - The government aims to create a new type of private pension plan within a year that would boost retirement savings for the self-employed and workers in small business, Finance Minister Jim Flaherty said on Thursday.
Flaherty needs the endorsement of his provincial counterparts to implement the “pooled registered pension plans”, or PRPPs, and expects to get it at a meeting with them on Monday in the Rocky Mountain resort of Kananaskis, Alberta.
The plan may set back efforts to expand benefits under the public pension system, the Canada Pension Plan, which has been the focus of the opposition Liberal and New Democratic parties.
The new option would pool contributions from workers across multiple companies, or independent workers who would otherwise not have access to a private defined-contribution pension plan. Multiple employer plans exist in Canada already, but are restricted to employers within the same industry.
The funds would likely be managed by insurance companies. The employers offering such a plan would not have to make contributions.
“The gap we’re trying to address in pension reform in Canada is in some 20- and 30- and 40-year-old Canadians. It’s a minority but it’s a significant minority. They’re saving but they’re not saving enough for their retirement,” Flaherty told reporters.
“We think the pooled pension plans will make a serious dent in that savings failure.”
Existing options are the public Canada Pension Plan (CPP), plans offered by employers, and individuals’ own registered retirement saving plans (RRSPs).
Pension reform has become a hot issue for policymakers and politicians after a series of reports showed many Canadians are not saving enough for their old age.
Some details of the plan remain to be finalized. Contributions would be tax-sheltered in the same way as RRSPs. Payments would be obligatory for employees of a firm that chose to offer such a plan, but there may be a way to opt out in some cases, according to a background document prepared by the Finance Department.
Plans would be portable, subject to certain conditions, and there would be fewer restrictions on self-employed members.
Liberal lawmaker Judy Sgro said the Conservative government’s plan amounted to minor tweaks to the system, affecting a tiny number of people and exposing them to more risk and higher fees than a supplementary CPP fund would.
“There’s no talk here of safeguards ... it doesn’t give you any protection,” she said. “It’s another tool in the toolbox but it really doesn’t address the bigger problem facing 75 percent of Canadians that don’t have a pension and won’t have one.”
New Democratic Party leader Jack Layton accused Ottawa of bowing to lobbying by the financial industry.
“We believe it’s because of the lobby from Bay Street who stand to make billions on this,” Layton told Reuters.
“It would be far better to use the Canada Pension Plan, which applies to everybody.”
But changing the public plan would be too costly and politically controversial in some provinces, Flaherty said.
“There are no quick or easy options on CPP. Several provinces have concerns that remain unresolved,” he said.
“It’s clear that we do have broad support on a private-sector solution.”
The plan would require tax changes at the federal level and regulatory changes by the federal and provincial governments.
Flaherty said he has held extensive talks with financial institutions, which are keen on the scheme.
Some industry players immediately welcomed his announcement and sent reassuring messages to show they are up to the task of managing such funds.
“The (insurance) industry is highly regulated in matters of solvency and governance. As a result, Standard Life is ready to take on the additional role that PRPPs would bring,” said Standard Life Assurance Co of Canada.
The Investment Industry Association of Canada said that the economies of scale created by pooling funds would ease concerns about keeping management fees low, therefore maximizing pension benefits.
Reporting by Louise Egan; editing by Rob Wilson and Peter Galloway