A number of financial institutions and other providers are now offering pooled registered pension plans (PRPPs) and voluntary registered savings plans (VRSPs), the PRPP’s Quebec equivalent. Except for VRSPs, which are mandatory for employers who don’t offer pension plans or other retirement savings plans such as group registered retirement savings plans (RRSPs), how popular are PRPPs likely to be?
For the most part, the reaction of the press and the retirement industry to PRPPs has ranged from polite indifference to near hostility. Very little has been published that would help the average Canadian understand what PRPPs are, much less want to participate in one. As for employers, those who already provide retirement and other savings plans to their employees are likely better informed, but few appear to be rushing into the arms of PRPP providers. In fact, so far the reaction of various types of stakeholders, from the self-employed to small employers to large employers, seems to be in line with the pros and cons that we have identified below.
There seems very little to recommend PRPPs to the self-employed. This is true currently and is likely to be the case for some time to come. A review of the PRPP and VRSP features that a self-employed taxpayer would be likely to think important, and acomparison with the RRSP, until now the only game in town for the self-employed, reveals why. We have labelled each feature identified in the table below as a pro or a con to indicate how we think an individual would be likely to judge it (which would be to prefer greater flexibility).
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The RRSP offers maximum flexibility and the fewest restrictions. The extent to which the limit on costs in PRPPs and VRSPs is a pro will depend on how much better these costs are compared with the costs that would be incurred in an RRSP. So unless the costs in a PRPP or a VRSP are substantially lower than those in an RRSP and that difference, along with any real or perceived convenience provided by the turnkey aspects of PRPPs and VRSPs over RRSPs, makes up for the restrictions imposed by those plans, a self-employed taxpayer is unlikely to choose a PRPP or a VRSP over an RRSP.
Smaller employers are less likely than larger employers to already be offering a retirement or savings plan of some sort. Presumably, if employers already had little appetite to offer such a plan to their employees, the advent of the PRPP is not likely to increase that appetite. As for employers who already provide a retirement or savings plan, PRPPs and VRSPs have to offer some sort of incentive for them to consider making the switch.
Given the mandatory nature of VRSPs, Quebec employers with at least five employees have no choice but to offer a VRSP unless they offer a plan that exempts them from having to participate in a VRSP. Quebec employers who do not currently provide a plan that would exempt them from the application of VRSPs may wish to opt out of VRSPs in favour of such a plan.
We have compared below the features of defined contribution registered pension plans (RPPs), group RRSPs, PRPPs and VRSPs that employers would find most important, and we have labelled each a pro or a con to indicate how we think an employer might view it.
Click here to view table
Proponents of PRPPs and VRSPs have touted these plans as employer-friendly primarily because of the off-loading of administrative duties to the provider and the legislated “low-cost” requirements. As discussed above, the impact of the limit on costs of PRPPs and VRSPs remains to be seen. However, the scope of the role of the PRPP and VRSP provider and the fact that they are licensed and overseen by regulators and are subject to fiduciary-like statutory standards of care should add to their appeal. In addition, it should be kept in mind that employers who select among competing PRPPs or VRSPs must do so with care (although no more so than if they were selecting a group RRSP provider). Given this need to act carefully, PRPPs and VRSPs could well be viewed more favourably than other plans by employers.