Recently OMERS CEO Michael Nobrega suggested that pension funds should also be permitted to compete with banks and insurance companies when it comes to pooled registered pension plans (PRPPs).  Benefits Canada followed up with an story and online poll asking “Should large pension plans be permitted to administer the new pooled retirement pension plans?” At the time of publication, 53% of respondents say “Yes” (including me), 23% say “No” and 25% say “There’s not enough information yet.”

If OMERS or other large pension plan boards are interested in competing with banks and insurers, I would like to suggest that perhaps they need not wait for the provinces and the federal government to flesh out the PRPP framework.

The trail that’s been blazed by the Saskatchewan Pension Plan (SPP) might represent an opportunity for other large pension funds to seek “specified pension plan” status from the federal government under the Income Tax Act regulations, and thus allowing them to compete in the PRPP space.

Recent Income Tax Act amendments made for the SPP including these two changes:

  1. All instances of the term “prescribed provincial pension plan” were changed to “specified pension plan”. This could this be a hint that the federal government might be open to also bestowing specified pension plan status on plans without provincial government sponsorship.
  2. The $600 annual contribution limit was removed and RRSP limits now apply. The $2,500 limit in the SPP is now only a function of that plan, not the Income Tax Act.

Any Canadian with employment income can apply to join the SPP. Unlike PRPPs sponsored by banks and insurers, the SPP has a fiduciary framework that is focused on the delivery of retirement plan services and income to plan beneficiaries without the possibility of conflicts with shareholder interests.

Other large pension funds would offer similar fiduciary frameworks, and many can deliver at costs even less than the SPP through economies of scale already established.  OMERS has demonstrated this already in very competitive pricing for their new voluntary contribution account services for their current plan members.

Even if specified pension plan status for other large pension funds is not forthcoming from the federal government, the current pension statutory framework does not preclude a willing pension plan board and sponsor from amending a pension plan to extend participation to unaffiliated employers.  In this regard, it is noted that although there is a minimum employer contribution requirement for a defined contribution provision (1% of earnings), this is subject to the administrative discretion of the Minister of National Revenue. Further, such rule will have to be modified in any event, in some fashion, to accommodate the PRPP principle of voluntary employer contributions.

In addition to the advantage of fiduciary independence from shareholder interests, large pension funds as competitors to financial institution PRPPs would also have the following attractive features:

  • participating employers would be relieved of any direct fiduciary obligations in respect of the pension plan (like PRPPs);
  • an immediately competitive pricing regime, based on already established economies of scale;
  • an established track record of investment results; and
  • investment offerings that are appropriately limited for a pension plan, particularly when compared to the plethora of investments offered by financial insurers which are very confusing for most pension plan members.

Perhaps most importantly, competition from large pension funds can set a tough standard towards ensuring a pension policy objective for PRPPs of realizing benefits from economies of scale and delivering most of those benefits to better the retirement income security for Canadians covered under such plans. Utilizing OMERS new voluntary contribution account fees as an example, fund investment management fees could be as low as 0.50% per annum (and possibly less), along with a fixed administration fee of $23 per member account.

The only question large pension funds really need to ask of themselves concerning this kind of pension innovation is, “Why wait?”

Copyright © 2019 Transcontinental Media G.P. Originally published on

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Mike Murphy:

Great idea, why not let the Canadian Pension Plan Investment Board also bid on and administer these new fangled PRPP’s. Or better still why not just enhance CPP and give every working Canadian a better Defined Benefit at the lowest cost in the industry.

No wait, that idea has been dismissed by Harper and his Banking Buddies already???

Friday, March 11 at 2:53 pm | Reply

Greg Hurst:

The CPPIB does not administer the CPP, only the investment fund, and CPP administration costs are actually higher than many corporate pension funds. They are, however, much lower than is charged on mutual funds.

Sunday, March 13 at 8:03 pm

Neil Craig:

Not sure why everyone wants to rush in to the PRPP pool. Is OMERS short of cash? Is it in the best interest of the existing plan beneficiaries? Is there a potential conflict of interest? Bigger isn’t always better and the investment objectives of a 25 year old will not be the same as the overall plan. Not everyone wants mommy to look after them and they would like some choice with respect to both funds and risk.

Friday, March 11 at 3:34 pm | Reply

Greg Hurst:

OMERS wants more cash to invest in large public infrastructure projects – the 10% rule somewhat limits the opportunities they can pursue on their own though.

I can’t see any obvious conflicts of interest on the part of a large pension fund, and in fact much less than financial institution PRPPs. PRPPs and specified pension plans are defined contribution arrangements, where liabilities for each member are equal to the value of their accounts, so there would be no impact on existing beneficiaries of a large pension fund. Finally, no one would be forced to join such a plan, so folks who don’t like how the fund is managed could take a pass.

Sunday, March 13 at 8:13 pm


Why not have 1 PRPP for all of Canada?

Friday, March 11 at 8:00 pm | Reply

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