# PRPPs details coming...



## sags (May 15, 2010)

If the article is accurate, and the proposed PRPPs will be voluntary for either employer or employees, and employers can opt out of contributing, this new concept will solve absolutely diddly towards the future retirement crisis, but will waste needed time that should have been spent building capital within a program that has a chance at success.

The banks, insurance companies, and other assorted financial industry inhabitants, need not hire any extra help to administer PRPPs, because nobody is going to be interested in them. The financiers shouldn't spend the untold riches they presume to make off the backs of the working stiffs. There won't be any.

This proposal is nothing....if not a public declaration that the government, in concert with their financial friends, believe that overall......Canadians are a dumb lot, easily convinced that the banks and insurance companies hold their best interest close at heart, and retirement income problems will be solved by assigning our retirement funds to them. Just...."trust us", they smile, "and we will see you again in 30 or 40 years".

As Shakespeare would put it......PRPPs are much ado about nothing.

http://www.financialpost.com/news/Back private pool/5111586/story.html


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## financialnoob (Feb 26, 2011)

I get the feeling this will be beneficial to some, but overall probably not as good for the majority.


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## Dave (Apr 5, 2009)

At least it is not mandatory.

Dave


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## financialnoob (Feb 26, 2011)

Dave: True for now. I mean without any details, we're just speculating. But the article did say this:



> The essence of PRPPs will be to let either employers or employees opt out.


So while it might not be mandatory, it sounds like it's possible some employers will opt out. Not sure how that impacts the employee's personal choice.


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## HaroldCrump (Jun 10, 2009)

We've had a few threads on this topic last year when this plan was first announced by Minister Flaherty.
I personally do not like it (at all).
Its loosey-goosey nature is a trap for individuals.

So to begin with it's a DCP and not a DBP, and that's the first and biggest boo-boo for me.
Secondly, it is voluntary.
Thirdly, the following :


> The original idea was that PRPPs would be mandatory for employers that don't offer their own registered pension plan but Mr. Menzies says that *decision would be up to the provinces.*


So, wait....the *province* gets to decide whether it is mandatory for a business (employer) to participate in the PRPP or not!
What kind of communistic dictate is that?

Obviously, I can see why all levels of govt. and the financial industry is salivating all over this.
The various levels of govt. are hoping that people will line-up for this voodoo and that will somehow reduce future social obligations like GIS and OAS.
The financial industry can already hear the ka-ching in their heads.

Once this convoluted scheme is implemented, I wonder what impact it is going to have on employee compensation for those private sector businesses that choose (or are forced by the provinces) to participate in this scheme.
Will salaries and benefits go down because the employer is now forced to contribute to this insane scheme?

Net result : private sector employees will now receive even less compensation (compared to their public sector counterparts) with no corresponding increase in the guarantee and security of their pensions.
Far from leveling the playing field, this stacks the decks further against the private sector businesses and workers


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## sags (May 15, 2010)

Reading the Nortel thread, it sounds like annuity payments can vary widely, from company to company.

So, a retiree not only has to decide how to invest their money, but also has to screen different companies to find the best annuity payouts........and may find out they are losing other benefits for the higher rate.

Apparently, discussions are now under way with CRA to decide what the tax treatment will be.

Typical of the government to take a simple problem and make it as complicated as they possibly can.


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## financialnoob (Feb 26, 2011)

sags said:


> Typical of the government to take a simple problem and make it as complicated as they possibly can.


That sums it up perfectly. Unfortunately.

And I don't want anyone to interpret this as an excuse for people not to take responsibility for their finances. But this feels like things are being made incredibly complicated for the express purpose of screwing people. There's a difference between giving people options and trying to complicate things so you can screw them. This feels like the latter.


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## andrewf (Mar 1, 2010)

Simplicity and lower cost is why I favoured something like a Supplemental CPP. This plan sounds like a muddle of not quite portable plans designed to be charged MF-style fees. Quite a sop to the asset management business. 

My understanding is that businesses can (and ought) to be forced to offer the program to employees, but not forced to contribute.


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## the-royal-mail (Dec 11, 2009)

Wasn't this a reaction by the gov't to the knowledge that we were not saving enough for retirement? I don't see how this will solve that issue. RRSPs already exist and have existed for a long time. Most of us don't/can't take full advantage of the limits they devised for us.

If they truly wanted to address the problem, they would simply expand the CPP by increasing the required contribution rates.

This reminds me of how they started looking into credit card fees and interest rates a couple of years back. After all the meetings and media space, the best they could come up with was to "make the terms clearer"...how wonderful. Bigger text on my bill to tell me the same thing it was telling me before.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> My understanding is that businesses can (and ought) to be forced to offer the program to employees, but not forced to contribute.


If any force is to be used, it might as well be towards an expansion of the CPP, mandatory or voluntary.
I'm not in favor of yet another tier of forced "retirement planning" imposed upon private sector businesses and workers, esp. one that is so deplorably inferior to public sector pensions.
All said and done, the net result will be lower profitability for private businesses, lower salaries and benefits for employees and no corresponding increase in retirement savings, or guarantee of those savings for the plan members.

I'm divided on whether any CPP expansion is better off mandatory or voluntary, but this type of mutual funds administered PRPP is the worst option among all the possible choices.


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## MoneyGal (Apr 24, 2009)

I'm going to wade in with an alternate point of view. 

I don't think the PRPP is a great option, and I've already come out strongly against a mandatory enhanced CPP. 

However, the PRPP is potentially a way for small employers to offer pension plans to their employees. I don't know whether there is any particular appetite for that on the part of small businesses, but that is the problem that this offering solves. 

People clearly don't save "enough" on their own (or some people don't save enough, as I keep hearing; I'm not personally convinced that we are facing a "crisis"). A workplace pension plan with auto-enrollment could get people started saving. This is a classic nudge. 

The other options - dramatic expansion of the CPP, for example - are never going to be on the table in a serious way, IMO. This solution potentially fixes a behavioural problem - "people aren't saving enough in current vehicles; we will make it easier for people to save." The audience here is all savers; we are not going to like this for totally different reasons.


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## the-royal-mail (Dec 11, 2009)

Sorry MG, gotta disagree with you. Why should the taxpayer go to the expense of creating yet another gov't bureaucracy and acronym to solve something that could be fixed in 5 minutes with a few keystrokes in the CPP database? Your post does nothing to explain why this isn't the best and most straightforward solution.

We see it all the time. People can't be trusted to save on their own. It appears as though we need to force them to do it so they "don't see" the money when it is deducted at source. If you let them choose, the result will be the same as before.

Again, I remind everyone of the presense of the RRSP as a savings vehicle if they want choice in how much they save.


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## MoneyGal (Apr 24, 2009)

Derp. TRM. You are vastly underestimating the complexity of expanding the CPP. 

See, for example: http://www.greghurst.ca/blog/blogweb/archives/6-Seven-Myths-of-CPP-Expansion.html

I've posted about this topic at length in other threads, I am very strongly opposed to the CPP expansion plans I've seen (but would potentially support other variants that I have NOT seen).


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## HaroldCrump (Jun 10, 2009)

MoneyGal said:


> However, the PRPP is potentially a way for small employers to offer pension plans to their employees. I don't know whether there is any particular appetite for that on the part of small businesses, but that is the problem that this offering solves.
> 
> A workplace pension plan with auto-enrollment could get people started saving. This is a classic nudge.


So if _that_ is indeed the extent of the scope of these proposals, what is wrong with the current group RRSP framework?
Even small employers can (and most do) offer group RRSP plans, with or without matching employer contributions.
Group RRSPs are already managed by the private financial/insurance industry and comprise mostly of managed mutual funds that employees can either pick selectively or pick a package based on their goals and risk tolerance.

I do not understand how the PRPP will be any different than the group RRSP plans.
The features of both programs are essentially the same - no guarantee, no indexation, no longevity protection, purely market return based, mutual fund based, etc.

If anything, private sector workers will lose the flexibility that group RRSP plans offer vs. a RPP.

Unless this new program offers any of the features of a true pension, it is worth diddly squat.
Or, as our American friends will say, it's only gravy.


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## MoneyGal (Apr 24, 2009)

Harold: I don't know. I've been thinking and talking about these issues pretty intensely for a long time. I am clear about the value of a true pension, and I am clear that the PRPP is not that. 

My problem, speaking only for myself, is that I truly don't understand why people who COULD save using the existing mechanisms do not.


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## Four Pillars (Apr 5, 2009)

Agreed - this new proposal is pointless.

As far as I can tell, the big "pension crisis" consists of a good chunk of the population who make middle-class money during their working years, spent most, if not all of it and are facing a major income drop in retirement when they have to get by on government benefits and CPP.

Since those people vote, the government *has* to do something about this crisis.

As others have said, the only way to help those people (who won't help themselves) is to expand CPP. Increase the premiums, increase the payouts and that way everyone who pays into the system will have a higher standard of living in retirement.


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## MoneyGal (Apr 24, 2009)

But how does that help the people who apparently need more money NOW? 

Unless you are OK with an enormous intergenerational wealth transfer, from the working-age to the retired populations - which is already happening with the current CPP - expanding the CPP will only take effect over a longer timeframe than will really help the current "crisis."

And in THAT case, why are you not arguing for an expanded OAS?

(Where is I Am Howard to post about how the current crop of retirees is sitting on a huge mountain of real estate and other assets?)


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## Four Pillars (Apr 5, 2009)

I'm not arguing for or against anything. I'm putting forth my opinion on the motivation behind this PRPP proposal and why I think it's pointless.

I don't think there is a pension crisis. Middle class people who can't save will just have to deal with a lower standard of living in retirement (in my opinion).

There are a surprising number of people who are eligible for [edited] GIS (I think 1/3 of all seniors). Clearly the CPP (in any form) and the PRPP are not relevant for them. But nothing has changed for this group (as far as I know). If anything, I'd be more supportive of higher GIS than an expanded CPP. 

There are a lot of issues in this discussion (CPP vs expanded CPP, OAS need expansion?) and I think the government is sort of lumping them all together and solving nothing.


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## MoneyGal (Apr 24, 2009)

I think you might be mixing up GIS and OAS. Virtually every senior citizen (about 96% in 2007, the latest year for which I have stats) receives OAS:

http://www4.hrsdc.gc.ca/[email protected]?iid=27

Only 2% of seniors have OAS fully clawed back. 

About 1/3 of seniors receive at least some GIS income. (1.4 million recipients for 4.7 million seniors in 2009)

Links for GIS info, in case anyone wants to check my math: http://www.statcan.gc.ca/pub/75-001-x/2009107/article/10906-eng.htm

http://www.statcan.gc.ca/daily-quotidien/100526/dq100526b-eng.htm


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## Four Pillars (Apr 5, 2009)

Yes, you are correct (as always) - I meant GIS.


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## andrewf (Mar 1, 2010)

As a young person, I'm not enthusiastic about increasing OAS. It's welfare for old people, usually going to seniors who are financially very secure. It's a terribly wasteful tool for the public policy goal of reducing poverty among seniors.

When I say I support a supplemental CPP, I'm talking about a nudge-based voluntary defined contribution plan that offers better management than can be received in retail MFs. Ask participants to fill out a questionnaire about their goals and then translate that into contribution rates, investment strategy, annuitization rates. Make it easy to save, and break the analysis paralysis than many small investors face.

As far as the DB portion of the CPP, I think we need to ask what goal it is designed to serve. It seems to me the purpose of the CPP is to force people to save a certain minimum of their lifetime earnings to ensure they do not become a burden to society in their dotage. In that case, you can argue for a higher replacement rate on a smaller annual income. Say, 60% replacement rate on 1.5 times the poverty line. Above that, we can encourage people to save through a variety of means, but it is their prerogative to save or not. For that reason, I see no reason to continue OAS. I would axe it and plow some of the savings into enhance GIS.


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## Charlie (May 20, 2011)

I'm with HC on this in that I don't see any real difference between this and a group RRSP. Except this is potentially mandatory, may have fewer investment options, likely adds complexity and admin, and may have to flow through your employer? Possibly you can't withdraw the money either until a certain age? Somebody tell me the differences???

If making RRSP contributions mandatory and restricting withdrawals is the 'fix' why not just mandate that? And good luck selling that idea!


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## MoneyGal (Apr 24, 2009)

andrewf said:


> When I say I support a supplemental CPP, I'm talking about a nudge-based voluntary defined contribution plan that offers better management than can be received in retail MFs.


I don't hear that on the table as any of the proposed supplemental CPP / CPP enhancement suggestions. I would support this option (not that my opinion matters much). This kind of option is already available: http://www.saskpension.com/index.php?page=spp.php


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## Four Pillars (Apr 5, 2009)

I agree with andrewf about the OAS program. It's really hard to understand why it exists in the current format. With income splitting, a couple has to make about $140k annually before any OAS rollback occurs.

An individual can make around $70k before any OAS rollback happens. Why on earth are we paying government money to people making middle class incomes in retirement?

If you are going to give out money, it should be means tested. Get rid of OAS and combine it with GIS to make it a means-tested program.


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## HaroldCrump (Jun 10, 2009)

This exact same topic was covered in the Lang-O'Leary show this evening.
It is an interview with Keith Horner.

You may watch the excerpt at:
http://www.cbc.ca/video/#/News/TV_Shows/Lang_&_O'Leary_Exchange/1308689786/ID=2060863497

Skip to about 35 mins. into the show.
The interview is about 5 mins total.

He didn't say much, hemmed and hawed, but by and large agreed that an expansion of the CPP is some form or another is probably a better option.



MoneyGal said:


> My problem, speaking only for myself, is that I truly don't understand why people who COULD save using the existing mechanisms do not.


Right, agreed, that is _a_ problem, but not the only problem.
I think there are two distinct problems - reluctance/inability to save and universal availability of true pensions (I read your article and agree 100% about _true_ pensions).

The PRPPs do not address either of these - one, because it is purely voluntary and two, because it's not really a pension.
So booo to the PRPPs.

Voluntary CPP contributions (or a supplemental plan administered by the CPPIB) will address the second issue, but not the first.

Mandatory expansion of the CPP, on the other hand, will address both issues.

It is not a perfect solution though since CPP payouts are still subject to re-assessments 30 years from now when the pension is needed.
However, it still appears (to me) as the best choice among the options discussed so far.

SPP is probably the next best.

On another note, I am not sure why the federal govt. has to do this PRPP thing when SPP is open to everyone.


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