PRPP could help pension disadvantaged

The pooled registered pension plan (PRPP) being proposed by the federal government gives Canadians another way to save for their retirement and could help level the pension playing field in Canada. “For a lot of Canadians wh

The pooled registered pension plan (PRPP) being proposed by the federal government gives Canadians another way to save for their retirement and could help level the pension playing field in Canada.

“For a lot of Canadians who are worried they’re not going to have enough money in retirement, this is a step in the right direction,” said Patricia Lovett-Reid, senior vice-president of TD Waterhouse.

“A lot of Canadians are fearful about their future and there is room for improvement to our retirement system.”

PRPPs are targeted to the estimated 3.5 million employed and self-employed Canadians who currently have no registered pension plans.

They would be managed by a third party and would offer defined contribution benefits.

They represent another savings vehicle for Canadians, with the added benefit of economies of scale that come from pooling individual investments.

A recent TD Waterhouse poll, and other polls and studies, have found that many Canadian boomers approaching retirement are worried they won’t have enough money to maintain their standard of living in retirement and could end up running out of money.

Only 15 per cent feel they are well-prepared financially for retirement.

Statistics reveal a rather dire picture of the financial preparedness of Canadians for retirement.

The average size of Canadians registered retirement savings plans (RRSPs) is only $55,000. Only 38 per cent of Canadians have access to a registered pension plan and only 28 per cent of workers in the private sector have access to employer-provided plans.

Further, only one third of people who are entitled to contribute to their RRSPs do so, and they have contributed less than six per cent of their eligible contribution room.

“It’s not that Canadians don’t have the desire to do more but they have limited resources and a limited level of financial literacy,” said Lovett-Reid. “Twenty-eight per cent of Canadians struggle with basic financial knowledge.”

Reaction to the PRPP idea has been mixed.

The investment industry generally has reacted favourably to the idea, saying it fills an identified gap in retirement savings options, makes it easier for small and medium-sized businesses to provide retirement plans for their staff, and could encourage Canadians to save more for their retirement.

Other groups, including some provinces, believe the federal government should be focussing on expanding and improving the Canada Pension Plan instead.

At the moment it appears the federal government is leaning toward PRPPs instead of improvements to the CPP.

While that might be good news for Canadians without a registered pension, most financial experts continue to stress that Canadians are spending too much, taking on too much debt and are not saving enough.

Canada’s household debt is now estimated at more than $1.4 trillion and there are no signs that the recession has altered consumers’ willingness to borrow. If debt were spread across all Canadians, each person would owe $41,740, two and a half times more than two decades ago, says the Certified General Accountants Association of Canada.

Those levels put Canada at the top of the 20 OECD nations in terms of debt-to-financial assets, and Canadians’ debt-to-income ratio at 144 per cent.

Compound the debt problem with the fact that Canadians are saving less, and you’ve got a recipe for potential financial disaster. The PRPP may not solve the problem, but it certainly could help.

“In 1980, Canadians saved 15 per cent of their after-tax income compared to only 3.3 per cent that they save now,” said Lovett-Reid. “The most important tip for people is to start saving earlier — don’t procrastinate. The PRPP could help those people who struggle with saving and help bring the pension disadvantaged up to the level of the advantaged.”

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors. He can be contacted at