Whether Prime Minister Justin Trudeau’s promise to enhance the CPP can shift from being a mere campaign pledge to becoming reality hinges on the provinces—and especially on Quebec.
As the first province to approve the federal government’s pooled registered pension plan (PRPP) and set a deadline for implementation, Quebec is being watched closely by other provinces, particularly B.C., Saskatchewan, Alberta, Ontario and Nova Scotia—all of which are in various legislative stages of setting up their own versions of the PRPP.
Quebec’s voluntary retirement savings plan (VRSP) has been in effect since 2014, but industry experts agree adoption has been sluggish, partly due to a lack of awareness and partly because the deadline for implementing the VRSP is still more than a year away ( Jan. 1, 2017).
“Take-up has been much slower than anyone had expected, and the thinking is, we’re going to see an acceleration going into 2016 as we approach the deadline the Quebec government has put in place for larger employers,” says Idan Shlesinger, a managing partner of Morneau Shepell’s DC pension and savings business. His firm is in a somewhat unique position as the only non-financial institution, noninsurance company that is also a major DC recordkeeper. “We administer many DC pension and savings plans. We also have our own VRSP product, much like Sun Life or Manulife, but on a trust platform rather than insurance.”
Shlesinger says nine organizations are currently offering VRSPs in Quebec, noting the province was more ambitious in its mandate than other provinces, requiring all employers over a certain size to offer the program. “That’s going to make it much more effective and widely used.”
The Quebec Experience
“Because of our strong presence in the Quebec market, we are at the heart of the deployment of VRSPs,” says Eric Filion, vice-president, development, marketing and investment strategies, at Desjardins Insurance.
Filion says the company has invested a lot of effort to ensure existing clients, employers and employees in Quebec are aware of the changes coming to the pension world. But he worries awareness of VRSPs isn’t where it should be, especially with a 2017 deadline looming. Part of the problem, he says, is that employers lack a sense of urgency.
“When you know the deadline is December 2016, why act now?” he asks.
Filion expresses concern that, “if people wake up in September or October and realize the deadline is coming, they may not implement the optimal solution. Our objective is to make sure clients have time to really understand the solutions to ensure they respond.”
In terms of whether or not employers already offering DC plans should consider a switch to a VRSP, Filion says the pension decision is based on client needs. But he concedes that most companies that already have some type of retirement savings plan implemented with professional support will probably be fine as they are.
But firms without plans need to be aware that their competitors will soon be offering a plan, because it will be mandatory. “When it comes to employee retention, do you want to keep an advantage in terms of your benefits, or do you just want to be equal to your peers? It’s a question that has to be addressed.”
Philippe Toupin, vice-president of small group business at Manulife, says he’s concerned some small businesses he’s talked to aren’t even aware of the VRSP. But, he says, Manulife is taking a proactive approach, making sure its team is working with advisors to bring awareness to the market. “So far, I would say our take-up has been very good, when you consider the first deadline is more than one year away.”
Citing publicly released figures, Toupin says 1,000 VRSPs have been set up so far, and 6,000 members are on board through nine VRSP administrators. “That includes $2 million in assets, so even though there’s no pressure to put the VRSP in place, the administrators have been doing a good job in creating awareness.”
The PRPP Differences
PRPPs offer benefits such as simpler governance and simpler oversight for employers. Under the rules of DC plans and group RRSPs, the employer sponsoring the program takes on certain obligations and roles to oversee the program, says Shlesinger. Under PRPPs, they are released from that obligation, which is taken on by the financial institution offering the plan.
“The trade-off is that employers lose any control of the program or the design of the program, or how it operates. So, instead of having their own program, they are now simply enrolling their employees in a financial institution’s program,” says Shlesinger.
On fees, the jury is still out. Although the PRPP legislation states the administrator must provide the PRPP to its members at a low cost, it remains to be seen how the provinces will interpret the rules. “Fees are likely to be comparable for any but the smallest employers, which will probably see fee reductions in the PRPP model,” says Shlesinger.
Mark Dowdell, senior vice-president at Accompass, agrees having the financial institution administer the plan is an advantage for employers. “It’s the administrator that’s taking on the fiduciary responsibility,” he says.
As for the premise a PRPP must be low cost, Dowdell expects the group providers to scale back the investment options available under such a plan. He expects to see index funds or proprietary funds (if a company has its own in-house products) “because they need to keep the cost of offering these funds down. So you would see a limited a number of offerings and more proprietary content compared to a larger plan or a company that wanted to start a stand-alone plan, where you would have more choice.”
Still, Dowdell sees the PRPP/VRSP model as an opportunity for group providers to win business because there are companies out there that don’t want to take on the fiduciary responsibility of offering a plan and having to manage it. “A company can just say I’ll give it to a financial institution and let them run with it. I think there’s an opportunity to gather new assets and new clients in that model.”
The PRPP Weakness
Shlesinger notes the weakness of the PRPP is that it’s “purely permissive,” with no rules requiring employers of a certain size to implement the plan, as in Quebec. “This just adds one more program, but employers that were inclined to offer a program would already have done so. So I think we’re going to see far less take-up outside of Quebec even once the regulations are fully enforced.”
Still, Shlesinger expects that most of the same players we see in Quebec today will offer PRPPs across the country. “But we’ll see less concentrated marketing that is less aggressive and with small take-ups. Instead of trying to capture everybody, which is the goal in Quebec, they’ll be trying to capture employers that would be inclined to offer a program and that would be looking for an alternative.”
He says other provinces seem to be moving in the direction of following the federal model of the PRPP, which does not mandate businesses to offer the plan. “So they are likely to have less take-up because they’re not likely to have the same mandate in place.”
Tom Reid, senior vice-president of group retirement savings at Sun Life Financial, agrees the PRPP will be “challenged” in provinces where employers don’t have to make the plan mandatory.
“The theme we’ve been advocating with governments across the land is that you should create the conditions for universal access,” he says. “Every Canadian should have access to a workplace savings plan, and the PRPP is exactly the right tool to make that happen.”
Reid says Sun Life’s approach has been to create a grassroots campaign for the VRSP in Quebec, using the company’s career sales force in the province, which numbers about 1,000.
“We’ve been getting tremendous turnout to our events, so our aim is to build credibility through the marketing of this through our career sales force. So that when they see the deadline approaching, it’s easy to pick up the phone…and get signed up with a VRSP. I’m confident that’s going to make a big difference; it’s a really powerful distribution channel we have access to and they’re really keen to help.”
The CPP Conundrum and the ORPP
Depending on whom you ask, Ontario will either go forward with its standalone Ontario retirement pension plan or drop it if the federal government follows through with its pledge to enhance the CPP. The problem, as Reid notes, is that two-thirds of the provinces representing two-thirds of the population must approve any changes to the CPP.
Quebec and B.C. have raised concerns, and together they could veto CPP expansion, he says. “While the federal government has made it clear they would like to expand CPP, the provinces have to be on board as well. That could take time to forge the needed consensus,” Reid says.
“I think the PRPP is the one that best aims at a very narrow problem,” he says. The overwhelming view from all the studies that have been done is that Canada is doing pretty well in preparing for retirement, Reid continues, noting the sustainability of the CPP and of workplace pension plans.
The only real “pocket of undersaving” concerns those who don’t have access to a workplace savings plan, says Reid, who adds a number of studies congregate around this point. “Those who don’t save at work are most at risk of not sustaining their standard of living in retirement. PRPP can fill that gap. You make it universal so every Canadian has access to a plan at work. I think that will make a huge difference going forward.”
Doug Watt is an Ottawa-based freelance writer.
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