Archived - Backgrounder: How Pooled Registered Pension Plans Will Address Gaps in Canada’s Retirement Income System

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The Government of Canada has been working with provinces and territories on ways to ensure the ongoing strength of the country’s retirement income system.

Their federal-provincial Research Working Group on Retirement Income Adequacy found that some Canadian households, especially modest- and middle-income households, may be at risk of undersaving for retirement.

There are a number of factors that may be contributing to this risk, including declining participation in employer-sponsored Registered Pension Plans (RPPs). The proportion of working Canadians with such plans has declined from 41 per cent in 1991 to 34 per cent in 2007.

Some Canadians may also be failing to take advantage of the discretionary savings opportunities offered to them through individual structures like Registered Retirement Savings Plans (RRSPs). Participation in RRSPs reached a peak of 45 per cent of the labour force in 1997 before levelling off to 39 per cent in 2008.

While aggregate RPP/RRSP participation rates for middle- and higher-income earners are quite high, the research indicated that a portion of Canadians may not be saving enough.

In December 2010, federal, provincial and territorial Finance Ministers agreed to move forward to introduce a new type of broad-based privately administered pension arrangement—called Pooled Registered Pension Plans, or PRPPs—as an effective and appropriate way to help bridge existing gaps in the retirement system.

PRPPs will address this gap in the retirement income system by providing a new, accessible, large-scale and low-cost defined contribution pension option to employers, employees and the self-employed. They will allow individuals who currently may not participate in an employer-sponsored pension plan, such as the self-employed and employees of companies that do not offer a pension plan, to make use of this new option.

This is especially important for small business owners and their employees, who will now have access to a large-scale, low-cost pension plan for the very first time—with professional administrators working to ensure that funds are invested in the best interests of plan members.

Since these plans will involve large pooled funds, plan members will benefit from the lower investment management costs associated with the scale of these funds. Essentially, they will be buying in bulk.

The design of these plans will also be straightforward. They are intended to be largely harmonized from province to province, which will also facilitate lower administrative costs. 

These features will remove barriers that might have kept some employers in the past from offering pension plans to their employees and that prevented employees and self-employed individuals from participating in large-scale pension plans.