On December 8, 2014, Ontario Ministry of Finance introduced legislation to allow Ontario businesses to offer Pooled Registered Pension Plans (PRPPs) to their employees, as well as to make PRPPs available to the self-employed. PRPPs would offer Ontario employees and the self-employed a voluntary, low-cost, tax-assisted option to increase retirement savings.
What is a PRPP?
A PRPP is a new voluntary retirement savings tool that enables members to benefit from lower costs, achieved through a simple design and economies of scale. Provincial legislation is required to implement PRPPs for Ontarians employed in sectors outside federal jurisdiction, which is the majority of Ontarians.
Benefits for Ontario businesses and people
PRPPs would give businesses, in particular small- and medium-sized businesses, a new way to offer a pension plan that is:
- Voluntary – Employers would decide whether to offer a PRPP; once an employer decides to offer a PRPP, enrolment would be automatic for employees, with the choice to opt out.
- Easy to offer – PRPPs would involve fewer administrative responsibilities for employers than a traditional pension plan.
- Tax-assisted – Similar to registered pension plans, employers’ tax deductible contributions would not be subject to Canada Pension Plan contributions or Employment Insurance premiums.
PRPPs would help build retirement savings for people, with a plan that is:
- Low-cost – Administrators would be required to provide PRPPs at a low cost to members by pooling the funds of members’ accounts for investment purposes.
- Tax-assisted – Similar to Registered Retirement Savings Plans (RRSPs), members would not pay tax on their PRPP contributions (and investment returns) until they withdraw their funds.
- Portable – Members could transfer their PRPP assets to a new employer’s PRPP if they change jobs.
- Locked-in – Typically, contributions would be locked in until a member reaches the age set out in regulations.
Strengthening Ontario’s retirement income system
Ontario is joining four other provinces that have passed PRPP legislation to implement PRPPs, including: British Columbia, Alberta, Saskatchewan and Nova Scotia.
To ensure the PRPP model would meet the needs of as many Ontarians as possible, in the fall of 2013, the government released a consultation paper to collect feedback from people, businesses, labour, pension experts and retiree organizations.
The current system isn’t going far enough
Canada and Ontario have a strong foundation of retirement benefit programs, namely the Canada Pension Plan (CPP), Old Age Security, the Guaranteed Income Supplement and the Ontario Guaranteed Annual Income System. However, these programs do not provide sufficient income replacement for middle-income earners to ensure they maintain a similar standard of living in their retirement.
- Workplace pension plans are less common than they used to be. Two-thirds of Ontarians do not have access to a workplace pension plan.
- People are not taking full advantage of retirement savings opportunities, leaving $280 billion in unused RRSP room in Ontario in 2012.
- Average lifespans in Canada have been increasing for some time and that trend is expected to continue.
- The possibility of outliving one’s savings can lead to lower standards of living in retirement and has become a concern for many future retirees.
- These trends will put pressure on government programs for seniors and may have an impact on taxpayers who fund these programs.