No saving grace: Are our best savings intentions hitting the wall?
Household debt loads at record levels, and a wave of retirees on the horizon that appear not to be prepared to support their lifestyles through their golden years has some of Canada?s top financial thinkers a little nervous.
Among them is Mark Wiseman, who took over as chief executive of the Canadian Pension Plan Investment Board in June.
Read the full story here.
In the best-case scenario, the federal government?s plan to ensure all Canadians save for comfortable retirements is in limbo.
In more dire circumstances, which some envision, the proposed low-cost Pooled Registered Pension Plan that would cull savings from workers who don?t have a pension plan through their employer is dead.
Ed Waitzer, director of The Hennick Centre for Business and Law in Toronto, is decidedly a believer in the more dire outcome for PRPPs.
?I think they?re likely DOA,? he said recently, nearly a year after co-writing a report for the C.D. Howe Institute that expressed concern about the success of closing the retirement savings gap being largely left in the hands of the provinces.
Developments since then have convinced him that the federal-provincial co-operation model put in place ?is too fragmented to be able to get an initiative like this done.?
The way PRPP?s are envisioned, money contributed by employees of companies without an in-house pension plan would be pooled and managed by a third-party administrator, such as a bank or insurance company. Participants would benefit from economies of scale and, therefore, a more diverse portfolio, as well as lower investment costs.
So far, none of the provinces have passed legislation that would empower or require employers to offer the federally mandated pooled pensions to their employees.
The PRPP is like Frankenstein?s monster awaiting a bolt of lightning to come down the kite string to animate it
The view in late 2010 was very different. That December, after months of discussions, Canada?s federal and provincial finance ministers put out a statement in which they agreed on the idea of pooled pensions administered by regulated financial institutions such as banks and insurance companies.
Legislation was introduced by the federal government a year later and passed in June of this year.
Quebec made a stab at following Ottawa by embracing the idea of pooled pensions imposed on small and medium-sized companies that don?t already provide savings plans for employees, but the proposed legislation died with the Liberal government in that province. So far, under the new Parti Quebecois government, the idea hasn?t made its way back on to the political agenda, though some hold out hope that it will be resurrected in some form with the budget on Tuesday.
?Other than Qu?bec, I believe that Ontario is the only province that has publicly mentioned PRPPs, which they characterized as ?flawed? in their 2012 budget,? says Greg Hurst, a pension consultant based in Vancouver.
Picking up Mr. Waitzer?s notion of trying to pull together a plan within a fragmented system, Mr. Hurst likens the creation of the PRPP to the story of Victor Frankenstein and his monster.
?The PRPP is like Frankenstein?s monster awaiting a bolt of lightning to come down the kite string to animate it,? he says, casting the provinces in the role of Frankenstein?s helpful servant Igor. ?The problem is, Igor forgot how to fly a kite.?
Or maybe he is simply moving in another direction entirely.
Indeed, before Ontario was thrown into a suspended legislature and a provincial leadership race, it appeared ready to reopen the idea of expanding the federal Canada Pension Plan and basically socializing the entire retirement income system, says Mr. Waitzer, who is also a partner at law firm Stikeman Elliott LLP.
?I?m not sure it?s wrong. It?s just a completely different model,? Mr. Waitzer says. ?Either of these choices is better than doing nothing.?
Ontario and Quebec are not the only provinces to have faced change since 2010, when the country seemed united in the movement towards pooled pensions. Even in jurisdictions where the premiers have remained the same, finance ministers have changed.
A successful rollout has also faced opposition from naysayers who see PRPPs as little more than ?tarted-up? RRSPs, a touted tax savings and investment vehicle from the 1980s that has been perpetually under-utilized by Canadians.
And it?s not just RRSPs. There are also options such as tax-free savings accounts, group RRSPs, registered disability savings plans, and employee stock ownership plans.
The plethora of choices can be confusing to Canadians, without the addition of a PRPP.
?As the number of plans and options for savings grows, the difficulty for the general public is in knowing which types of plans, accounts and investments are best for them,? says Carl Spiess, director of wealth management and a senior wealth advisor at Scotia McLeod.
Moreover, he says, firms that offer advice will need to invest in software and training to ensure they make the best recommendations for clients.
?Just like we encourage Canadians to spend time considering their expanded list of choices, for our part, financial institutions need to provide additional training to employees so they can better assist our clients in understanding the many options out there.?
The C.D. Howe Institute and the Investment Industry Association of Canada have suggested the addition of the PRPP to the list of retirement savings plans could create other problems. For instance, there could be damaging tax implications for some lower income Canadians who might even be better off without one because much of their added savings may be clawed back from their government pension income at the end of the day.
The IIAC took the concerns to federal Finance Minister Jim Flaherty this summer, but they have not been addressed, according to Andrea Taylor and Barb Amsden, directors at the investment industry association.
?No material changes have been made to the PRPP legislation, regulations or Income Tax Act to address the imbalances we identified,? the IIAC directors said in an emailed statement.
In the end, of course, their concerns may be moot.
Keith Ambachtsheer, a veteran pension consultant who co-authored the C.D. Howe paper last year with Mr. Waitzer, says the rollout of the proposed pooled pensions is far from certain.
?The future of the PRPP project from here will very much depend on how seriously Ontario and Quebec take it,? he says. ?That is hard to tell at this point, with the new Quebec government still settling in and the Ontario Liberal leadership convention still two months off.?
David Denison, former chief executive of the Canada Pension Plan Investment Board, says gaps left in the PRPP plan at the federal level ?don?t make it especially compelling for people to get behind [it] and push ahead.?
The plans aren?t mandatory for employers, and there is no mechanism to create a gradual payout stream that would help Canadian manage their money through a retirement that could last decades, he says. Without that, the PRPP, even if it becomes a reality, is likely to fall short of the policy objective of helping Canadians generate sufficient retirement incomes.
?It?s not really going to make a significant difference,? he says.
Tuesday: Even if there is a viable option to help under-saving Canadians secure a comfortable retirement, do we know enough about our own finances to find it?
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Source: http://business.financialpost.com/2012/11/19/pooled-pensions-remain-a-dream/
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