PRPPs — a re-branding of our current, inadequate retirement saving “options”
Aug 25, 2017
The Manitoba Government recently announced it will make “Pooled Retirement Pension Plans (PRPPs)” available to Manitobans as another retirement savings option.
Here’s why Manitobans planning for retirement should see this announcement as simply more of the same.
A little history
The Harper government originally introduced PRPPs in November 2011. At the time, they were refusing to expand the Canada Pension Plan and claimed PRPPs were intended to “encourage Canadians to increase their savings for retirement, particularly those who don’t have a workplace pension or who don’t invest in RRSPs, by providing a low-cost investment alternative.”
Here in Manitoba, we didn’t hear much about them for a while because the provinces couldn’t offer them unless legislation was passed allowing PRPP’s within their region. On August 1, 2017, however, the Pallister government passed the Manitoba Pooled Retirement Pension Plan Act, and they are now in the process of signing a multilateral agreement with the Federal Government.
How will PRPPs work?
A Pooled Registered Pension Plan (PRPP) is a bit of a hybrid — very much like an RRSP, but with the legal requirements that govern a Defined Contribution Pension Plan.
Employees and employers, including those who are self-employed, contribute to a PRPP much like they would contribute to an RRSP. These contributions from various individuals and employers are then combined to provide the investment power of a group, with supposed lower investment management and administration fees.
Much like a Defined Contribution Pension Plan, contributions made by employees and employers make up a percentage of the employee’s earnings. Funds are locked-in to the plan and cannot be withdrawn until the member reaches age 55.*
Much like an RRSP, a member’s contributions are subject to the same limits applied to RRSP contributions.
Employer participation in a PRPP is voluntary, but once an employer joins a PRPP, all employees are automatically enrolled, with 60 days to opt out if they wish.
Why PRPPs are not a good option for working Manitobans
Especially compared to Defined Contribution Benefit Plans, there are a number of serious limitations and drawbacks to the PRPP option.
- Employers get to choose the PRPP administrator
and can terminate the PRPP arrangement without employee consultation;
- Unlike traditional workplace pension plans, employer
contributions are not mandatory;
- PRPPs do not pay out pensions;
- Life insurance companies, banks and other large
financial institutions will administer PRPPs and stand to benefit from
- All of the investment risk is born by the employees
rather than the employers;
- There are no guarantees that administration fees
will remain low;
- An employee’s retirement date and funds
available at retirement are sensitive to the market;
- PRPPs will not provide predictable pensions like
Defined Benefit Pension Plans or the Canada Pension Plan (CPP);
- Contribution room (like with RRSPs) will be
inadequate for many workers.
In other words, PRPPs simply offer yet another voluntary savings vehicle that won’t guarantee any particular pension at all. As the C.D. Howe Institute pointed out in a 2012 report: “PRPPs will not allow workers or their employers to contribute to the kind of predictable or target retirement income provided by the Canada Pension Plan or by existing single-employer, multi-employer or jointly sponsored Defined Benefit Pension Plans.”
As a union working to provide our members with the most secure retirement possible, we greet the arrival of PRPPs in Manitoba with wariness. They are simply a re-branding of our current, inadequate retirement saving “options” — the kind often touted as alternatives to the real pension plans we all deserve after a lifetime of work.
For more information about PRPPs, visit:
*There are some exceptions to the locking-in rules, being the case of non-residency in Canada for two or more years, small accounts with less than 20% of the Year’s Maximum Pension Earnings (YMPE) and a shortened life expectancy of less than 2 years.
Samantha Probetts is the MGEU's Pension and Benefits Specialist
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