Following the introduction of Pooled Retirement Pension Plan (PRPP) legislation in November, the Canadian Life and Health Insurance Association (CLHIA) commissioned a survey of 800 small and medium sized businesses to gauge interest in the new offering.
Released in January, the survey found that two-thirds of those not currently offering a retirement plan are interested in providing PRPPs and 71 per cent agreed that employers should be compelled or required to offer some form of retirement savings plans to their employees. Even 73 per cent of those interested in offering PRPPs said they’re likely to look at ways their businesses could contribute as well.
For those without an employer-sponsored pension plan, PRPPs are being introduced in an effort to reduce the retirement savings deficit many Canadians face.
In short, the hope is large, pooled funds will be able to deliver lower investment costs and remove some (cost) barriers that have prevented smaller employers in the past from offering pension plans to their employees.
In their infancy, PRPPs are the government’s response to research from the Federal-Provincial Research Working Group on Retirement Income Adequacy that found Canadians, especially those in modest and middle-income households, are probably under-saving for their retirements.
The group noted that declining participation in employer-sponsored Registered Pension Plans (RPPs) and declining contributions to and participation in Registered Retirement Savings Plans (RRSP) schemes were contributing to the risk.
The number of working Canadians with RPPs declined from 41 per cent in 1991 to 34 per cent in 2007. RRSP participation peaked at 45 per cent of the labour force in 1997, before leveling off to 39 per cent in 2008.
Federal, provincial and territorial finance ministers agreed to move forward on the introduction of PRPP legislation in December 2010 and proposed Income Tax Act amendments were rolled out shortly after the legislation was introduced a year later. According to government documents, “it is proposed that these change come into force at the same time as the PRPP Act.”
It says the tax act changes will apply to both federally and provincially regulated PRPPs. Contributions will be deductible for tax purposes and will be limited to the member’s available RRSP contribution limit for the year.
Employers are not required to make any minimum contributions and will not be required to report pension adjustments.
Administrators are required to avoid intentionally acquiring investments where a member has a signification interest and will also need to take “reasonable precautions” to avoid concentrating more than 10 per cent of a plan’s assets in any particular business.
Decumulation (unwinding or payout) options will follow those available to defined contribution RPP members. Similarly, surviving spouses will be allowed to become a successor PRPP member, taking over ownership of their deceased partner’s funds. Alternatively, these can be transferred to the spouses’ own registered accounts or used to purchase a qualifying annuity. If contribution room is available, funds can also be transferred to a Registered Disability Savings Plan (RDSP) for a dependent child or grandchild.
Finally, HST rules will also be amended “to ensure that PRPPs are subject to the same GST/HST treatment as RPPs.”