You might have noticed a pension item in the news just before the holidays. At a December meeting in Alberta, federal and provincial finance ministers decided not to move on improvements to the Canada Pension Plan (CPP), but rather to proceed with some kind of private sector-based savings scheme – a Pooled Registered Pension Plan or PRPP.
Federal finance minister Flaherty, who had been part of the broad consensus for CPP improvements at the previous ministers’ meeting last June, did a U-turn just before the December meeting, saying it was not a good time to improve the CPP.
Flaherty’s flip-flop was shocking, if not surprising. The Conservatives were just being true to their Bay Street backers, defending their lucrative Mutual Fund/RRSP turf from encroachments by the CPP.
Flaherty didn’t even bother to suggest that a CPP improvement wasn’t the best (really the only) way to deal with the long-term retirement income problem in Canada. He simply said it wasn’t a good time to proceed. Unfortunately, if Bay Street has its way, there will never be a good time for a CPP improvement.
If there is a concern about the impact of increasing CPP contributions in our weak economy (though the macro-economic impact would not be much different from the impact of PRPPs), these would not start to be phased in for a year or two, and could even be delayed further if the economy remains weak. The CPP is a long-term program, and, in any case, the improvements will be phased in over many years. What is unacceptable is postponing the needed changes strictly for the benefit of the banks and insurance companies.
The Ministers did agree to move forward on PRPPs, basically RRSPs to be offered through large pooled funds. RRSPs have been around for more than 50 years, and they haven’t met the retirement income needs of most Canadians. Unlike the CPP, they don’t, and won’t, provide near-universal coverage or an indexed benefit promise. In PRPPs, as in RRSPs, individuals will pay all of the costs and carry all of the risks.
The main selling point for the new PRPPs is that their fees are supposed to be cheaper than current RRSPs, because they will be invested in large funds. Since they are going to be run by the same banks and insurance companies that are currently ripping people off in their mutual funds and RRSPs, how likely are these banks and insurance companies to undercut themselves with these new funds?
At best, PRPPs are new marketing tools for the financial services industry. They will not make a significant impact on Canada’s long-term retirement income problem.
If there is a silver lining to this story, it is that the Ministers did not kill the idea of a CPP benefit improvement at their December meeting, but put it off until their next meeting in June. CPP amendments require the approval of two-thirds of the provinces with two-thirds of Canada’s population as well as the federal government. Most of the provinces are apparently still supporting the CPP improvement proposal.
We need to send a message to the federal government, and all of our provincial governments, that PRPPs are not good enough. We need CPP improvements, and we need to move forward now.