The federal government?s proposed new pension system, mainly aimed at self-employed Canadians, is no more than an RRSP program with a ?new coat of paint,? according to the C.D. Howe Institute.
The Ottawa-based public-policy group also warned the pooled registered pension plan would do little to help mid- to low-income earnings save for retirement.
The report, titled Pooled Registered Pension Plans: Pension Savior ? or a New Tax on the Poor?, concludes that PRPPs could be ?vastly improved? by changes to proposed tax rules.
[PRPPs] are for the most part a re-release of an existing retirement savings vehicle ? RRSPs ? with a new coat of paint
?As currently proposed, PRPPs present only the appearance of reform because they are for the most part a re-release of an existing retirement savings vehicle ? RRSPs ? with a new coat of paint,? said James Pierlot, a pension specialist and member of the Pension Policy Council of the C.D. Howe Institute.
Pooled pensions are voluntary and are aimed at reducing costs and improving investment returns for small business and self-employed Canadians through asset pooling and third-party administration.
They were introduced by the federal government this year with the expectation that provincial governments would follow suit and adopt PRPPs for the vast majority of Canadian workers, who are under provincial jurisdiction. Legislation to create PRPPs was passed in June.
But, the C.D. Howe Institute argues, PRPPs offer little more than existing options, such as registered retirement savings plans and defined-contribution pension plans, which specify the amount of an employer?s annual contribution.
?This is because tax rules for PRPPs ? essentially identical to those that apply to RRSPs and similar to those for [defined contribution] plans ? will prevent many private-sector workers from saving enough for retirement and from receiving retirement income in the form of a life pension,? the report said.
?Even worse,? it said, ?PRPPs should be avoided entirely by many low- to middle-income workers, who will face taxes and government-benefit clawbacks on PRPP retirement benefits at ratesthat are significantly higher than the refundable rates that apply to contributions.?
Still, the government defended the new program Thursday, saying PRPPs provide another retirement options for Canadians.
Ted Menzies, the minister of state for finance, did not respond directly to the think tank?s criticism, but said people ?save differently and increasingly need different tools to do so.?
?That?s why our government introduced the TFSA (tax-free pension accounts), the most successful savings tool since the RRSP,? he said. ?We are now expanding the retirement savings system with PRPPs. Taken together, these products are providing more savings options for more Canadians than ever before.?
Among the C.D. Howe?s recommendations:
? PRPPs should allow tax-free accumulations so that low- and middle-income workers do not face punitive effective tax rates when they retire.
? PRPP members should have the option of accumulating self-funded, target pension benefits under the same rules that apply to the federal government?s workers and to members of other defined-benefit pension plans, but which are not available in RRSPs, DC plans and the proposed PRPPs.
? Lifetime accumulation limits should be introduced to help level the playing field with defined-benefit pension plans and to provide equal access to tax-free pension saving.
? PRPPs should be allowed to pay out retirement savings as lifetime pensions,which only DB plans are now allowed to do.
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