Optional Pension Plan is no plan at all

Jim Flaherty's surprise turnabout on pension reform is nothing less than a gift to the finance industry and corporate Canada.

The finance industry will no doubt be pleased, because the working public and smaller employers will be encouraged to shovel investment funds their way, rather than to a publicly controlled investment fund like the CPP. The scheme seems eerily like the watered down U.S. Health Care Reform, which rejected a "single payer" public system in favour of directing public funds and required health insurance purchases through the already massive health insurance industry. In both cases, the lower costs and fairer access of a public system have been less important than an idealogical belief in supporting private industry (and keeping it profitable).

We need to ask, how is this any different than the status quo? In fact, there are no shortage of banks and investment companies willing to manage anyone's retirement fund, even a very small one (though of course you need to invest serious coin to make "real money"). Most are no doubt quite reputable, and if you're careful they won't skim off too much into their own pockets. So, Flaherty's plan seems to be just a bit of fluff and official encouragement for what we already have.

RRSP participation is well below what it could be. This Vancouver Sun report found that only a third of eligible Canadians contributed to their RRSP, and only 6% of RRSP room has been made use of. We can speculate that many Canadians either can't afford to participate, or choose to spend their money elsewhere. It's hard to see how Flaherty's "reforms" are going to significantly change this dynamic. Since it will be optional for employers and employees both (just as it is today), people who choose not to contribute to their RRSP are not likely to contribute to the Pooled Retirement Pension Plan (PRPP) either.

This will be a major advantage to employers over a mandatory plan. If it's mandatory, like the existing CPP, then it has to be paid, and they have to pay employees more so that their take home pay still attracts employees. An optional plan is unlikely to have any effect at all on employee compensation. Employees who are just scraping by will still just be scraping by and so will just have to defer any ideas about saving a bit extra for their retirement. Others who make a bit more but are swayed by the consumer culture to spend it rather than save will still do so. There won't be any real inducement for employers to pay their employees more so that they can save, and so their employees won't be saving any more. The working Canadian will still be part of the rush to the bottom of the global economy.

The PRPP is a cop-out. It may provide a bit more structure and regulation than an RRSP, but it's still an optional plan and as such, will not do much to encourage Canadians to save. Those that don't, or can't afford to, will still be living on inadequate CPP income for their retirement and depending on food banks to make ends meet. Canadians need a mandatory pension plan such as the CPP which provides adequate benefits at retirement, so that employers have no option but to pay their employees a living wage as well as put something away for their retirement. Instead of providing pension options that aren't needed, Mr. Flaherty should ensure that CPP continues to provide an adequate income for Canadians who have contributed throughout their working years.