Pooled Registered Pension Plans (PRPPs), Canada’s new retirement savings vehicle, will not address the retirement needs of low-income Canadians, Malcolm Hamilton, a partner with Mercer Human Resource Consulting, told the 2012 Advocis Regulatory Affairs Symposium in Toronto last month.
“You lose the advantage of the PRPP when you start streaming it into the wrong tax structure,” Mr. Hamilton said, adding that PRPP benefits would claw back money from other government programs such as old age security and guaranteed income security.
Expected to come into effect in 2013, PRPPs are aimed at employees of small businesses that can’t afford to offer pension plans. The concept behind the program is that more workers would save if contributions were automatically deducted from their paycheques instead of setting money aside to put into registered retirement savings plans.
“As the government describes it, the PRPP is for people with modest incomes,” Mr. Hamilton said. “But lower-income Canadians are currently pretty well looked after.”
What he called the “working poor,” Canadians who bring in about $20,000 a year or $17,000 after taxes, currently retire at age 65 with $18,100 a year in government benefits, and therefore don’t need to put money away to replace earned income in retirement. So there is no incentive for them to put money into PRPPs, Mr. Hamilton said, and then have their other benefits reduced upon retirement.
By comparison, he noted, Canadians who earn $40,000 a year will receive about $25,000 a year at age 65 from government programs and through putting $1,600 a year into tax-free savings accounts.
‘The people we are most worried about not saving for retirement are those who make more than $40,000 a year,” said Susan Eng, vice president for advocacy at CARP, a not-for-profit national organization that works for social change for older Canadians.
One delegate voiced the importance of investing as a way build financial assets to live on in retirement. “I want my clients to build up their assets so that they won’t need government plans,” he said.
The important role that financial advisors will play in the coming years was noted by Advocis president and CEO Greg Pollock in his opening address to the symposium. As the huge baby-boomer demographic moves into retirement, he said that the affordability of government programs is coming into question.
But he added that new, independent research recently released by Claude Montmarquette and Nathalie Viennot-Briot of the Montreal-based Centre for Interuniversity Research and Analysis on Organizations, or CIRANO, offers strong evidence of the link between financial advice and the accumulation of financial wealth.
“It is fair to say their paper, which has the unassuming title of Econometric Models on the Value of Advice of a Financial Advisor, has finally closed the books on the issue of whether middle-class Canadians benefit from their advisors,” Mr. Pollock said.
The paper is based on a survey of more than 18,000 households compiled by Ipsos Reid and the Investment Funds Institute of Canada in 2010 and 2011. The survey found that financial advice has a positive and significant impact on a client’s assets, and contributes significantly to the rate at which a household saves.