Minister of State (Finance) Ted Menzies recently announced a change to Canada’s pension landscape by introducing the Pooled Registered Pension Plans (PRPP) Act. Since PRPPs are particularly applicable to small business, the minister delivered his remarks at a small radio station without a company pension plan.

“Today marks a major milestone in our efforts to ensure the ongoing strength of Canada’s retirement income system by providing a pension option for the many workers, like those here at Canadian Multicultural Radio, who currently do not participate in a company pension plan,” Minister Menzies said.

“Incredibly, just over 60% of Canadians do not have a workplace pension plan. Canadians work hard to realize their retirement dreams, and PRPPs will offer them a new, low-cost and accessible pension option to help meet their goals. If you invest in a PRPP you will benefit from lower investment management costs associated with the large scale of these funds. Essentially, you will be buying in bulk. This will leave you with more cash in your pocket when you retire.”

As the retirement income gap continues to grow wider in Canada, many experts agree something needs to be done. But will PRPPs be the answer?

The current three-tiered approach to retirement income includes Old Age Security and Guaranteed Income Supplement programs, mandatory public pension schemes like CPP and QPP, and private savings plans like RRSPs and workplace pension plans.

Despite these options, millions will not have enough savings to live comfortably in retirement. A third of the population has no retirement savings at all, and only 34 per cent of workers are covered by a workplace pension plan.

The original talk of boosting CPP payouts and premiums attracted criticism from Alberta, Saskatchewan and Quebec, despite its support from seven provinces and many seniors groups and unions.

The Pooled Registered Pension Plan is a pension scheme aimed primarily at self-employed Canadians and those working at smaller companies where no company pension plan is available. The plan is expected to be largely voluntary, meaning employers would not have to contribute. If an employer offers the PRPP plan, all employees would automatically be enrolled with the option to opt out. Contributions would be pooled, and money would be managed by a third party such as banks. Most notably, pension payouts would depend on market performance of the contribution pool so benefits would not be guaranteed and workers would assume all market risks.

The federal government has tabled a legislative framework to implement its part of the plan. But provinces will need to introduce their own enabling legislation. According to a CBC report, the expectation is that most will soon do that.

In addition, the tax rules for PRPPs are being developed by the federal government. The PRPP tax rules will apply to both federally and provincially regulated PRPPs, according to a government news release.