Study highlights cost differences between CPP, private pension plans

In comparing the Canada Pension Plan to private pensions, a new study finds the latter face more regulatory hurdles, are more complex and face higher costs as a result.

The study by the Fraser Institute reviewed the different regulations governing the CPP in comparison to other plans, including private and public sector pensions, registered retirement savings plans and tax-free savings accounts.

“The regulations governing private pension plans, which can lead to increased transparency and accountability, inevitably also increase costs, but often those same regulations and costs don’t apply to the Canada Pension Plan,” said Moin Yahya, a senior fellow at the Fraser Institute, a law professor at the University of Alberta and co-author of the study, in a press release.

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For example, the CPP is exempt from many disclosure requirements, such as regular financial statements, as well as provincial rules and industry standards. On the other hand, private plans face all of those government-imposed regulations, the study noted.

“Too often, people jump to the conclusion that the CPP’s comparatively lower costs are a function of efficiency, but the reality is that substantial regulations are imposed on private plans that the CPP avoids,” said Yahya.

In addition, private plans have several characteristics that the CPP doesn’t, according to the study. For example, private plans have to account for transfers from one plan to another, while CPP contributions aren’t transferable. Also, where defined contribution plans, RRSPs and TFSAs allow members to choose where to invest their funds, the CPP doesn’t offer any choice. 

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Further, there are almost no laws that would allow for a lawsuit against the CPP for bad governance, according to the study, which noted the public plan enjoys substantial cost savings from not having to anticipate or defend against any liabilities. Private plans, by contrast, are under the threat of litigation and must account for that.

“Understanding what actually drives the cost differences between the CPP and private alternatives is critical,” said Yahya.

“The reality is that some of the cost of private pensions is a result of government-imposed rules and regulations from which the CPP is exempt.”