Is Canada finally facing the reality that meaningful pension reform can no longer be delayed?

At first blush, it would appear so. Last December, federal Finance Minister Jim Flaherty met with provincial counterparts in Victoria to forge a consensus on how to move ahead with Ottawa’s proposed pooled registered pension plan (PRPP). In February, Bill C-25—known as the Pooled Registered Pension Plans Act—passed second reading in the House of Commons and was referred to the Standing Committee on Finance.

The primary aim of PRPPs is to boost private retirement savings for future pensioners. And there is some hope that PRPPs will improve pension coverage, particularly among the small and medium-size businesses that otherwise shun the administrative and fiduciary burdens that come with managing traditional registered pension plans (RPPs).

Why does this matter? Though the Canada Pension Plan (CPP) is relatively well funded compared with other countries’ public pensions, payouts are hardly enough to fill the gap in lost income for many retirees. Making matters worse, according to Statistics Canada, in 2009, the pension coverage rate (the proportion of all employees covered by an RPP) was only 39.2%.

But to make PRPPs available to all Canadians, Ottawa needs the help of the provinces: in Canada, pension reform is a multi-jurisdictional issue. The federal law would apply only to federally regulated industries such as banking, aeronautics and rail transportation. So it will be up to the provinces to implement their own regulatory frameworks for PRPPs that would be extended to the rest of the private sector. Indeed, Bill C-25 anticipates that provinces will adopt “mirror” legislation.

Quebec, Manitoba and Saskatchewan are already ahead of the other provinces in terms of putting in place a framework to align provincial plans with federal RRSP and RPP rules. Others are expected to follow, though the Ontario government has expressed strong misgivings about implementing PRPPs, mainly over concerns that the initiative would not increase coverage in a meaningful way.

Read: Industry leaders call for action on PRPPs

What’s more, the success of PRPPs will require proper harmonization of rules between the provinces to ensure that future retirees have access to simple, low-cost plans.

For a comparison of DC, group RRSP, PRPP and group TFSA plan types, download the PDF of this article.

“It is a very realistic possibility that each province will introduce a slightly different version of the PRPP legislation,” says Mitch Frazer, a partner and pensions expert with Torys LLP in Toronto, who appeared in February before the Standing Committee on Finance on behalf of the Canadian Bar Association. “Having different sets of rules will increase the administrative burden on eligible administrators and will inevitably increase the cost of administering the plans.”

A tangled web
But that would defeat the purpose of PRPPs, which are as much about increasing pension coverage in Canada as getting around the existing patchwork of byzantine rules that govern traditional pension plans.

The root of the problem, says Dominique Monet, a partner with Fasken Martineau LLP in Montreal, is that “most employment in Canada is provincially regulated, and the federal government cannot dictate pension law or policy to the provinces.” Canada is unique in the world in having 11 different pension regimes—one federal and 10 provincial—each with its own idiosyncratic rules.

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See all comments Recent Comments

Mike Murphy:

Easier and more sensible solution is to increase the premiums and the pension supplied by the Canadial Pension Plan (CPP) and Quebec Pension Plan. These cover ALL working Canadians; are mandatory for both employees and employers; completly portable (doesn’t matter where you work in Canada); carry a lower administration cost then most plans and extremely lower than cost of RRSP’s or PRPP’s.

Your right about one thing – PRPP’s are more problems and not much of a solution for Canadians.

Tuesday, May 08 at 12:26 pm | Reply

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