The advice industry’s response to the newly introduced Pooled Retirement Pension Plan (PRPP) continues to be, at best, mixed.
“Principally it’s a great idea; extend a simple effective payroll savings vehicle to small business and self-employed,” says Ian Collings, a Vancouver-based planner, who specializes in group savings RRSPs and pensions.
He says there is a good chance the PRPP will be successful, although that will depend on each province’s commitment to the program.
“The plan type will gradually grow in its attraction, just like TFSAs,” Collings says. “When TFSAs were introduced much of the investment community viewed them as an annoyance or as a rounding error. Now they’ve grown too popular and common to ignore.”
The plan was welcomed wholeheartedly by the Financial Advisors Association of Canada [Advocis] as “a good first step to helping Canadians be better prepared for retirement.”
The next step is to ensure that individual members of a PRPP have access to financial advice, said Greg Pollock, president and CEO, Advocis.
“Almost two-thirds of Canadians don’t have a workplace pension plan and that’s unacceptable,” he said. “With the introduction of PRPPs, smaller businesses and self-employed Canadians will have the opportunity to be better prepared for their retirement.”
For tax purposes, PRPPs are treated in the same way as RRSPs. The difference is that PRPPs can be set up by small businesses the way larger businesses currently set up their pension plans.
Some in the industry have expressed concern that an efficient savings plan may be detrimental to professional advice. Pollock says participation in PRPPs does not negate the need for individual financial advice.
“Professional financial advice would improve financial outcomes for the majority of Canadians, and that includes those Canadians who will be participating in pooled funds,” he said. “Financial advisors can lend their support and expertise to ensure PRPPs achieve their objective of preparing Canadians financially for the kind of retirement they want.”
Participation in a PRPP or other pension plan is only one of many elements that Canadians should consider when building a comprehensive financial plan. A financial advisor can help Canadians better understand and manage all facets of their finances, leading to improved financial outcomes both pre- and post-retirement.
PRPPs are a new type of broad-based privately administered pension arrangement. The plan addresses gaps in the existing retirement income system by providing a large-scale and low-cost defined contribution pension option to employers, employees and the self-employed.
The plan is being promoted as a low-cost pension option with lower administrative costs and will have professional administrators working to ensure that funds are invested in the best interests of plan members.
These features are expected to remove barriers that have kept many employers from offering pension plans to their employees.
Concerns are being raised over the differences in benefits legislation across provinces which could be particularly problematic for employers who have employees in multiple jurisdictions.