The New Pension Proposal: Great for Banks, not Canadians

by admin on March 13, 2011

In the view of most Canadians, the best way to revamp the Canada Pension Plan is to expand it and increase the CPP benefits. Instead of listening to the majority of the population, however, last December, Federal Finance Minister Jim Flaherty offered a new way to reform the Canada Pension Plan – the introduction of Pooled Registered Pension Plans.

Many financial experts are puzzled by this proposal and have already expressed critical opinions about it. As they see it, the private financial institutions operating the PRPPs, and not the average Canadian worker, will be the ones making big profits. For example, the administrative costs needed to maintain the current Canada Pension Plan amount to 0.25 per cent per year, while private funds collect 2.5 per cent or even more (source: Stoney Creek News). The brunt of this huge difference, of course, will be borne by the regular Canadian. Minister Flaherty’s proposal will simply leave Canadians exposed to gouging by the mutual fund industry in the country, charging the highest administration fees of all countries, claims Paul Moist, National President of the Canadian Union of Public Employees (CUPE).

Of all working Canadians, some eleven million have no workplace pension plans. If PRPPs come into force, this will have grave consequences for many Canadian citizens who, as a result of the recent economic crisis, cannot afford and do not make RRSP contributions (actually, a recent Environics poll estimates the number of these people to 74 per cent of all Canadians). A pooled registered pension plan will not adequately address the real needs of Canadians as they won’t be able to save for retirement, says Mr. Moist and adds that it is outrageous for financial institutions and banks to pull the strings of the Conservative government as to put this proposal on the table.

Another drawback of Minister Flaherty’s plan is that it will diminish the role and responsibility of employers – they will be able to participate in a PRPP only if they choose to. And even when they do agree to join a PRPP, they may demand that their employees also make contributions to it. Furthermore, within the PRPP framework, employers will no longer bear the responsibility of operating defined contribution plans, as most of them have had to so far, which will place additional administrative burden on the employees.

From all this, it is obvious that the PRPP reform will have a negative effect on the Canadian workers and will cause them many financial difficulties when they reach retirement. Instead of pursuing it, the Conservative government would do much better if it expanded the Canada Pension Plan, while phasing in the bigger premiums over a large period of time. This way, it will avoid any unfavorable impact on the Canadian economy. And not only workers will avoid the heavy charges of the privately run mutual funds – the non-contributing employees will also have the chance for a financially safer retirement. It is up to us to defend our rights, and we should voice our disagreement with Minister Flaherty’s PRPP plan as actively and openly as we can, preferably at the expected federal elections this spring.

Recently, the government suggested that a modest improvement of the Canada Pension Plan was possible. The good news is that most provinces are supportive of the idea. Finance Minister Flaherty, however, has postponed the discussions for the finance ministers’ meeting in the summer. The timing is great for the government as this will be past the federal election.

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