Jonathan Chevreau wrote:Tories, financial industry favor PRPPs
However, in December, Finance Minister Jim Flaherty instead unveiled proposals for Pooled Registered Pension Plans
or PRPPs, aimed at letting small and medium size businesses share resources and cut costs through traditional employer pensions. The goal is to help out the estimated 3.5 million middle-income private sector workers who have no employer pension.
The PRPP has already had initial negotiations with the provinces, so is already moving down that path, Markham says. “The Feds did agree the provinces are free to force employers to offer a PRPP. I wonder if the Liberals would go down that path as well?”
Ignatieff acknowledges three quarters of private-sector workers are not in employer pensions (RPPs) but dismisses PRPPs as being fraught with “risk, complexity and hidden management fees.” They offer “little more than RRSPs already offer” but naturally appeal to the banks and insurance companies that will manage them, he said.
But the Liberal analysis is off base when it declares many RRSPs have annual charges of 2% or more. That may be true for those who hold mutual funds in their RRSPs, but it’s patently untrue for self-directed RRSPs holding individual stocks or exchange-traded funds.
Ignatieff also accuses Stephen Harper of “abandoning” the CPP and delivering no serious pension reform the last five years, conveniently forgetting 2009’s revolutionary Tax Free Savings Accounts, pension splitting and now the PRPPs.Labour likes Big CPP, especially in addition to their lush pensions
One reason Labour likes an expanded CPP is it promises a guaranteed or “defined” benefit that will be there regardless how financial markets behave. Ignatieff reminded voters that (under Lester Pearson), the Liberals created the CPP in 1965. A backgrounder says any such expansion requires approval of two thirds of the provinces but most support a gradual expansion of the plan.
Quebec may be a problem since it runs its own QPP separate from the CPP. Ian Markham says in its recent budget, Quebec said contributions would have to be hiked just to maintain existing benefits. In addition, just two weeks ago, Quebec proposed its own version of a PRPP.Gradual CPP expansion OK only if done right
A gradual expansion of the CPP is a good idea but only if it is done right, says Fred Vettese, chief actuary with Toronto-based Morneau Shepell. “That means responsible employers who already provide pension coverage should be able to pare back that coverage dollar for dollar to reflect the increase in CPP.”
But that’s not what labour groups have in mind, Vettese says. “They want to see a bigger CPP pension cheque in addition to the employer pension they already get, and in some cases the resulting pension will be excessive.”
Consultant Greg Hurst, of Vancouver-based Greg Hurst & Associates Ltd., agrees: “Higher CPP benefits would unnecessarily benefit those who already have good pensions. It will also cost taxpayers more money to support higher CPP contributions of public sector employers, that already offer very generous pension plans.”
[...]Both are possible but three-way balance needed
Actuary Malcolm Hamilton, worldwide partner with Mercer’s, has said he favours a “modest” expansion of CPP but that the gradual nature of it will be of little use to those already near retirement. There’s room for both an expanded CPP and PRPPs, he told me in December.
Most financial planners believe retirement should be like a three-wheeled tricycle, with income coming from a government wheel, employers and private savings. Government already provides Old Age Security, GIS and the CPP (albeit with premiums from employers and workers), while individuals have RRSPs, TFSAs and taxable investments.
It’s the employer wheel that seems wobbly and it seems to me that by focusing on employers, the Conservatives’ PRPPs provides more balance than a Big CPP. But it’s no surprise proponents of Big Government also want a Big CPP.