Legislation implementing the federal framework for a new Canadian pension option has received Royal Assent, meaning workers will soon be able to 'pool' their pensions through their administrators.
Ted Menzies, Minister of State (Finance) said the complete passage of bill C-25: the Pooled Registered Pension Plans Act was an important step towards offering a new, large-scale and low-cost pension option to employers, employees and the self-employed. Once operational, the new Pooled Registered Pension Plans (PRPPs) will allow many small business owners and their employees to have access to such a plan for the very first time.
PRPPs will provide a low-cost retirement savings opportunity for employees and the self-employed. Most of the administrative and legal burdens associated with a pension plan will be borne by a qualified third-party administrator, subject to a fiduciary standard of care. Automatic enrolment will take place where an employer offers a PRPP.
“Because PRPPs will involve pooling large funds, Canadians will benefit from lower management costs. In effect, Canadians will be buying in bulk, leaving more money in their pockets when they retire," Menzies explained.
The PRPP tax rules have been designed to be simple and straightforward and to promote low-cost plans. The legislation amends the current Income Tax Act and the Income Tax Regulations to accommodate the establishment of the new vehicles. The tax rules for PRPPs will apply to both federally and provincially regulated PRPPs and will operate alongside the Pooled Registered Pension Plans Act.
With the federal legislation passed, PRPPs will become available across Canada once the provinces pass their enabling legislation. Regulations will soon be published to address provisions of the Pooled Registered Pension Plans Act. Menzies said that the provinces will be able to "easily and seamlessly" use the federal legislation as a model for their own. He urged "all provinces to adopt PRPP legislation in the near-term for the benefit of those Canadians currently without access to a workplace pension.”
Reacting to the news, Dan Kelly, President and Chief Executive Officer of the Canadian Federation of Independent Business (CFIB), said: “Saving for retirement is a real concern for small businesses, as close to 80% have no company retirement plan for the business owner or their employees. PRPPs will be a welcome addition to the retirement savings toolkit as they are intended to be lower cost, free of payroll taxes and administratively simple.”.
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