The federal government has created the pooled registered pension plan (PRPP) in the hopes that provinces would each adopt a bill creating a similar product for their own pension jurisdiction.

In a perfect world, everyone would just adopt the same PRPP rules so that we would have commonality across the country. But true to Canadian form, this will remain a dream, as each province has to think things through and likely end up with its own tweaked version of the PRPP—if they decide to adopt the PRPP concept at all.

Except for pre-election Quebec, it seems that provinces are in no hurry to implement PRPPs.

Could this be for the best? I see this pause as an opportunity to implement better-designed, more effective PRPPs that would truly help bridge the pension gap in Canada.

Quebec’s VRSP status
Quebec was the first province to introduce a PRPP bill, creating the voluntary retirement savings plan (VRSP). However, that was before the recent election that led to a change in government before the bill was passed, so another bill will need to be tabled if the VRSP is to see the light of day.

Even though pensions were all but totally absent from the election campaign, the Parti Québécois (PQ) pre-election intention was to continue with the VRSP idea. But the PQ has a minority government and many expect new elections within a couple of years.

The PQ may then be tempted to generally play it more left-wing so as to sway voters from Québec Solidaire (QS), a more socialist and progressive political party that did fairly well in the election. As an example, QS advocates making the Quebec Pension Plan universal and covering 60% of employees’ earnings on average.

It would be surprising that the PQ goes this route, but it is entirely possible that it might consider making the VRSP even more stringent, for instance by requiring a certain level of employee and employer contributions.

In any event, more thought will no doubt be given to the whole project and the proposed go-live date of January 1, 2013 for the VRSP is has become virtually impossible to meet.

Better, but good enough?
The VRSP proposal went further than the federal PRPP proposal to ensure the new tool would truly be effective in growing Quebecers’ retirement savings. The VRSP proposal integrated many lessons learned from other countries, such as the following:

  • requiring all employers with five or more employees to offer them access to a VRSP—note that VRSP’s were to also be available to individuals (some fantastic news for those stuck with expensive retail products), including the self-employed;
  • auto-enrolling all eligible employees (but allowing them to opt out); and
  • setting default employee contribution rates that escalate with time (but allowing employees to reduce or pause their contributions).

There is no doubt that these elements would improve access to valuable savings arrangements, increase overall retirement savings (to a point) and even have more employers participate to their employees’ saving efforts than is the case now with many group RRSPs, for instance.

Even with these additional features, the VRSP would not really plug the pension hole—even with the additional attributes that the federal PRPP does not have. Accessibility is one thing, but saving enough and ensuring these savings are used for pension purposes is key to getting Canadians financially ready for retirement.

Improving on a good idea
If governments are serious about improving the pension situation, they need to look at some more drastic measures that have been taken in other countries, such as mandatory participation and employee and employer minimum contributions.

Here are some key features that would improve the effectiveness of PRPPs in closing the pension gap:

  1. Use PRPPs as the default pension arrangement option, but let employers choose another type of plan (DB or DC pension plans, group RRSP, etc.) if desired. Any employer already offering a retirement arrangement meeting requirements would not need to change it.
  2. Mandatory minimum contributions should be enough to provide a reasonable replacement ratio, but could be coordinated with the Canada Pension Plan/Quebec Pension Plan, recognizing the need to save less for retirement at the low end of the earnings spectrum, and capped at a certain earnings level, above which market forces would play to cover high-earners competitively.
  3. PRPPs could offer both a registered account (like pension plans or RRSPs) and a TFSA-like account to lessen potential tax impacts from government programs
  4. Minimum contributions could be introduced progressively over a number of years (by annual increases of 0.5% of earnings perhaps), affording employers time to adapt and factor in their total compensation/rewards strategy. For example, an employer could present a budgeted 2% total compensation increase to their employees as a 1.5% increase in salary and a 0.5% increase in employer retirement savings contributions, not affecting the total payroll cost.
  5. These mandatory savings (both employee and employer contributions) should be locked-in until retirement (perhaps with the usual home buyer and lifelong learning plan exceptions) to avoid leakage.

Walk the talk
The current PRPP and VSRP proposals will help some Canadians, but are simply not sufficient to do what is needed.  It is important to manage Canadians’ expectations and not pretend that PRPPs in their currently suggested forms are a panacea.

Fixing a predictable long-term problem requires the political courage to make unpopular decisions. If governments truly want to bridge the pension gap and ensure Canadians all benefit from sufficient retirement income in the future, they should put in place a solution that will stand a chance to deliver. Otherwise, the government needs to modify these expectations and bring them down to something more realistic.

Copyright © 2020 Transcontinental Media G.P. Originally published on

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