The federal government’s December 2010 announcement of the pooled retirement pension plan (PRPP) arrangement has been the most significant piece of pension reform introduced in Canada since discussion on the topic increased following the 2008 economic crisis, according to a panel speaking at the Benefits & Pension Summit, held in Toronto last week.
The panellists, Tina Di Vito, director of retirement solutions with BMO’s retirement market group; Greg Heise, partner at Morneau Shepell; and Frank Swedlove, president of the Canadian Life and Health Insurance Association (CLHIA) agreed that the program’s success will depend on its design.
While Canadians will have to wait until legislation supporting PRPPs is introduced before full details are understood, Quebec’s unveiling of its voluntary retirement savings plan (VRSP) in its 2011 budget included important details that all the panelists agreed should be matched by other provinces.
“The primary purpose of this vehicle is improving pension coverage in Canada. We know that Canadians aren’t saving enough for retirement, and this is really an issue of, ‘If you build it, will they come?’ It will depend on how well you build it,” said Heise.
Heise said the harmonization of PRPPs across Canada will be a key issue, to ensure Canadians have a retirement savings vehicle that is portable from employer to employer and province to province.
“This is something that remains to be seen,” said Heise, who noted that Quebec’s pooled plan announcement didn’t even achieve harmonization on the name PRPP. “Certainly there are key aspects that will have to be harmonized—for example, locking-in rules. If you don’t achieve this harmonization, you’re going to add complexity and you won’t achieve the coverage.”
According to Heise, individual employers will be responsible for selecting PRPP investment vehicles for their employers and setting contribution levels, another factor that could affect harmonization across Canada.
Swedlove noted that the Quebec government’s decision to make it mandatory for employers in the province to offer a VRSP and for employees to be auto-enrolled into the plans are elements that would lead to a much higher level of participation and greatly increase the potential for subsequent saving. He said that U.S. plans that have moved toward auto-enrollment have increased participation rates from around 50% to around 90%.
The appetite for an effective savings vehicle exists among Canadians, said Swedlove, which should make auto-enrollment a palatable feature of the PRPP.
A recent CLHIA survey indicated that 90% of Canadians agree with the concept of PRPP, while just 13% believe that the primary source of retirement income should be from government vehicles such as the Canada Pension Plan and Old Age Security.
“You get the participation rates up with auto-enrollment very, very quickly,” explain Swedlove. “Within a year or two of the introduction of this program, if you had mandatory [employer] participation and auto-enrollment, you could have well over 80% participation.”