In November, the Canadian government introduced legislation to promote and support pooled private pension plans. The government says that these plans will address current gaps in retirement income, especially for the more than 60 per cent of Canadians who don’t have a workplace pension plan. But most Canadians don’t want more private products for their retirement savings. Most Canadians want an increase in benefits paid through the public Canada Pension Plan (CPP).
According to a recent poll by Environics Research Group, more than 75 per cent of Canadians support increased CPP benefits. The CPP is a defined-benefit plan that provides a secure, predictable income in retirement, indexed to inflation. But regardless of what Canadians want, the federal government says that it is not expanding the CPP because, in part, employers have complained about the costs of increasing their contributions.
Ken Georgetti, president of the Canadian Labour Congress, said that the decision to promote private plans instead of enhancing the CPP is an ideological move devoid of common sense and good research.
It’s really nothing more than a piecemeal approach that rewards banks, insurance companies and mutual fund companies instead of offering real retirement security options for everyone,” Georgetti said. “Every credible piece of information that we have seen indicates that Pooled Registered Pension Plans would be far inferior to an expanded Canada Pension Plan in providing retirement security for Canadians.
As most Canadians aren’t currently making contributions to an RRSP or other private pension plans, there is little reason to believe that they will contribute to a new pooled plan. Like an RRSP, these are defined-contributions plans, administered by third parties with no government contributions or oversight. Banks, insurance companies and mutual fund companies will manage the plans, for a fee. There is also little reason to believe that employers will be eager to contribute to the pooled plans, especially given their recent complaints on modest enhancements to the CPP.
Bob Ripley, pension and benefits officer of CUPE local 500 in Winnipeg, spoke to Mud and Water Radio about how the costs of private pensions versus the CPP. “Management fees for mutual funds are 2.5% on average where the CPP investment board cost is 0.5 per cent” he said. “These (private plans) are very expensive ways of saving for retirement.” Ripley also said that there’s no indication that most workers could afford to contribute to this new plan.