March 27, 2013

We received some good news – good financial news for a change, today. As reported in today’s Vancouver Sun, “British Columbia has become the first province in Canada to create legislation for group pension plans,” for the vast majority of people who do not work for the public sector or a large corporation. According to the report, this opens the door to two-thirds of residents.

I remember hearing about pooled pension plans quite some time ago and immediately thought they were a good idea. Pensions are critical to financial planning and budgeting. People need to start young and start small. A common mistake made by over-zealous individuals is to be too eager to reap the tax benefit today and end up cashing in the RRSP tomorrow, many years before retirement. I’ve been counselling people for years to remember that taxes are not eliminated by RRSPs but only deferred. You get a tax break today because your income is likely to be much higher while working than when retired.

The new legislation is called the Pooled Registration Pension Plans Act and provides well-regulated, low cost pension plans, (managed by licensed financial institutions). This is great news for the self-employed and workers for small-medium sized businesses who may not have a pension plan. Employers will not be required to match contributions if they get involved.

CRA calls them PRPPs (pooled registered pension plans) and outlines a few of the benefits on their website as follows:

A pooled registered pension plan (PRPP) is a new, accessible, straightforward retirement savings option for employed and self-employed individuals who do not have access to a workplace pension plan or where a workplace pension plan does not exist.

A PRPP enables its members to benefit from lower administration costs that result from participating in a large, pooled pension plan. It's also portable, so it moves with its members from job to job.

Since the investment options within a PRPP are similar to those for registered retirement savings plans (RRSPs), its members can benefit from greater flexibility in managing their savings and meeting their retirement objectives.

Quebec, Alberta and Saskatchewan have also signalled their intention to pass similar legislation.