A New Way to Save for Retirement: Pooled Registered Pension Plans (PRPPs)
On November 17, 2011, the Federal Government tabled legislation to create Pooled Registered Pension Plans (PRPPs). The move is aimed at encouraging Canadians to save more for retirement.
In the works for some time, the introduction of PRPPs is intended to serve the 60% of Canadians who do not have a pension plan. PRPPs will be made available to employees and the self-employed who are not currently covered by a defined benefit pension plan.
According to a CBC report, some of the key points in the Federal Government’s framework for PRPPs are, as follows:
- PRPPs are largely voluntary. Employers would not be forced to offer the plans to their employees (although provinces could pass legislation requiring employers to offer them). Employers would also not be forced to contribute anything to them.
- If employers do offer the plans, all employees would automatically be enrolled, but would have the right to opt out.
- Employees would contribute through payroll savings, making it easy to contribute.
- Contributions would be pooled, allowing for lower administrative costs.
- Money would be managed by third parties like financial institutions.
- Government regulation would aim to keep fees low.
- Pension payouts would depend on market performance of the contribution pool so benefits would not be guaranteed; workers would assume all market risks.
The tax rules for PRPPs are being developed and are expected to be released in draft form shortly. Based on the information released to date by the Federal Government, it is expected that PRPPs will be subject to most of the existing tax rules applying to RRSPs, with some modifications.
Enjoy the weekend. Until next time,
