Minister Promotes New Canadian Pension Vehicle

by Mike Godfrey, Tax-News.com, Washington

02 February 2012

The introduction of Pooled Registered Pension Plans (PRPPs) will bridge gaps in Canada’s retirement income system, the Minister in charge has said.

Speaking at the C.D. Howe Institute, Ted Menzies, Minister of State (Finance), held a roundtable to discuss how this new pension vehicle will affect retirement planning. He said, "Canada’s Finance Ministers have agreed to proceed with a framework for the introduction of a new kind of pension plan, the PRPP. The PRPP is a targeted way to help millions of Canadians who have not previously had access to a large-scale, low-cost company pension plan.”

The government is in the process of consulting on proposals for the creation of PRPPs. Legislation was introduced in November last year for the federal implementation of the scheme, while in December the consultation process was launched to enable the provincial governments to follow suit. The legislation will amend the current Income Tax Act and the Income Tax Regulations to accommodate the establishment of PRPPs, which are intended to be largely harmonized from province to province to help lower administrative costs.

Under the new scheme, PRPP members will “pool” their pensions through their administrators. According to Menzies, the design features of PRPPs will address barriers that might have kept some employers in the past from offering pension plans to their employees.

The government believes that, by pooling pension savings PRPPs will offer greater purchasing power, achieving lower costs than would otherwise be available. In addition, professional administrators will be subject to a fiduciary standard of care to ensure that funds are invested in the best interests of plan members. The organisation of these plans will also be straightforward to allow for simple enrolment and management.

“Participation in privately administered and well-regulated workplace pensions will be encouraged by automatic enrolment of employees into a PRPP, where an employer offers one. By making participation automatic, Canadians will save more and our retirement income system will be healthier as a result,” Menzies concluded.

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