Canadians who do not have access to a retirement plan through their workplace (such as a defined benefit pension plan or a group RRSP) will soon have another, more convenient way to save with the introduction of Pooled Registered Pension Plans (PRPPs).
A PRPP is a defined contribution pension system offered by regulated financial institutions such as banks and insurance companies. Employers simply "sign up" to a plan from a licensed provider. PRPPs will make it easier and more cost-effective for small and medium-sized employers to offer pension plans, and for the first time, it will give the self-employed an option to participate in such plans.
"It's only a matter of fairness,” says Frank Swedlove, president of Canadian Life and Health Insurance Association (CLHIA). Why should only those working for governments and large corporations have access to pensions? With PRPPs, all working Canadians will benefit."
The federal government has now passed the legislation that puts the necessary framework in place for the provinces to move forward with establishing PRPPs for their own residents. So far, British Columbia has taken the lead and other provinces support the idea. Swedlove hopes that PRPP legislation will be in place across the country by the end of this year.
The benefits are these: With PRPPs, you can start saving automatically and change how much you save from time to time. You can choose from a range of investment options or a default option specifically designed to provide prudent retirement savings.
Contributions made from payroll deductions are simple and convenient and they avoid withholding tax that would apply to contributions to RRSPs. And since PRPPs combine the savings of large numbers of Canadians, the costs of managing these plans will be lower than traditional RRSPs. In effect, it will allow you to save at "wholesale" rates.
Making saving for retirement simple and automatic is an easy way to "pay yourself first" and help ensure your retirement years are financially secure.
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