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A pooled pension plan isn’t a pension

Posted by on Nov 21, 2011 in Retirement | 0 comments

By Moshe A. Milevsky | Fri Nov 18 2011

Toronto Star


 The Federal Government finally tabled the Pooled Registered Pension Plans (PRPP) Act, and I am predictably underwhelmed. The New Retirement Deal, it ain’t.

According to the press release on The Department of Finance’s webpage, Minister Ted Menzies said, “If you invest in a PRPP you will benefit from lower investment management costs associated with the large scale of these funds. Essentially, you will be buying in bulk. This will leave you with more cash in your pocket when you retire.”

So this is it? The RPPP raison d’être, was about enabling Canadians to buy their mutual funds for less?

I have a better idea. Why not nudge Canadians to shop at Costco? You can get soy sauce in 950 milliliter jugs, 500 servings of Metamucil in one package, and four-liter containers of my 6 year-old daughter’s favorite chocolate milk syrup. . If the point is for Canadians to have more cash when they retire, I think there are much more effective ways of doing that.

I thought the point of this whole exercise was to increase pension coverage? One should not confuse an investment plan with a pension plan. The former is just a collection of money that moves up (and down) with market-linked instruments. The latter is a guarantee, a promise, a life time of security. Canadians need more longevity insurance and old-age protection, similar to the pensions of public sector employees. (I enjoy one myself, as part of my job at York University.)

I suspect the reasons 60 per cent of Canadians do not have a workplace pension – and risk having less cash when they retire – is not because they are buying their pensions at an expensive convenience store instead of in bulk.

If, in fact, the main objective the Act was to create cheaper and more secure retirements for Canadians, I would have expected to see some reference to investment costs and life-income products in Bill C-25 itself.

The only meaningful economic restrictions placed on the administrators of these plans is that “they must offer investment options of varying degrees of risk and expected return that would allow a reasonable and prudent person to create a portfolio of investments that is appropriate for retirement savings.” This is still accumulation thinking in an environment that needs de-accumulation and income guidance. So you will now be able to select both a large-cap growth fund and a small-cap value fund in your PRPP. Brilliant.


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