A new pooled registered pension plan option for the self-employed and those working at smaller businesses will help "bridge the existing gaps" in current retirement savings options, the federal government said Thursday.
Ted Menzies, the minister of state for finance, announced details Thursday about the latest effort to encourage Canadians to put away more money for their retirement.
"The reason we're doing this is because over 60 per cent of people in the workforce today do not have a workplace pension plan," Menzies told CTV's Power Play Thursday.
"That's a lot of Canadians that aren't protected (and) aren't preparing enough for their retirement."
The new plans would be run by a regulated financial institution, have a relatively low cost because of the large size, and give more resources to Canadians to save for the future, Menzies said.
They are geared towards the self-employed and those working at smaller businesses which can't otherwise afford to offer employee savings plans.
When asked if the new plan would cost the government tax revenue, since pension contributions result in tax breaks, Menzies said that Canadians simply aren't saving enough.
"Since 1991, in Canada, there is accumulated $600 billion of unused tax room in RRSPs, so people are not utilizing," he said, adding that only 8 per cent of Canadians topped up their RRSPs in 2009.
In an earlier press conference, Menzies said that putting the funds together will give Canadians more clout.
"By pooling pension savings, PRPPs will offer Canadians greater purchasing power. Basically, Canadians will be able to buy in bulk, and buying in bulk means lower prices."
In a federal overview of the plans last year, the governments said a "high level of regulatory harmonization across the federal and provincial governments will be instrumental in increasing the scale of these plans and achieving low costs."
But Interim NDP leader Nycole Turmel said Canadians are watching their investments tank on the stock market and aren't interested in a pooled plan.
"Instead of taking practical steps to strengthen the guaranteed CPP-QPP, the government is all set to roll the dice with even more of (Canadians') retirement savings," she said during question period Thursday. "Why is this prime minister forcing Canadians to play retirement roulette?"
Prime Minister Stephen Harper didn't take too kindly to Turmel's remarks.
"Mr. Speaker, I have absolutely no idea what the leader of the opposition is talking about," he responded coolly. "(The pension plan) has been welcomed by pension experts and by small business owners. Canadians do not want a hike in their CPP contributions as advocated by the NDP."
The main benefit of the PRPPs is that employees at small businesses will have the ability to save for retirement through payroll deductions, at a lower cost due to the pooled nature of the system.
"PRPPs will allow self-employed individuals to participate in private sector pension plans for the first time," said Terry Campbell, president of the Canadian Bankers Association.
Some critics have dismissed Pooled Registered Pension Plans, or PRPPs, as little more than one more savings plan option that will allow banks to earn profits through management fees.
"It's really nothing more than a piecemeal approach that rewards banks, insurance companies and mutual fund companies," said Ken Georgetti, president of the Canadian Labour Congress.
The government-run Canada Pension Plan (CPP), by contrast, does not siphon off profits to banks.
Both the CLC and the Canadian Union of Public Employees, two of Canada's largest organizations for unionized workers, have recommended that the federal government expand CPP to address retirement security.
Another criticism is that many Canadians already have access to low cost voluntary pension plans, but choose not to contribute.
While the new PRPPs would not be mandatory, the federal government is expected to allow employers to set up the system on an opt-out basis. That means new employees would automatically be signed up and would have to choose to opt-out of the savings plan if they didn't want to contribute.
That measure is expected to greatly increase participation.
The Canadian Federation of Independent Business, a lobby group for small- to mid-sized companies, has commended the government for making PRPP's voluntary.
"CFIB is particularly pleased that firms will be given a choice as to whether to register for or contribute to a PRPP," said Dan Kelly, the federation's senior vice-president for legislative affairs.
Also, according to reports, employees who choose to participate in the PRPP would not be required to also contribute to their employee pension plans.
Private-sector financial institutions such as banks, trust and insurance companies could apply to manage the PRPP funds and keep track of individual accounts. Under the plan, the government promises to use regulation to ensure the private firms keep their fees low.
With files from The Canadian Press
