If you are in small business or advise those in a small business, you have to learn a new acronym and you have to do that before 2012, and that’s a PRPP. It’s a bizarre thing to tell you to do, but what you might not realize is that over the last two years many of the provinces have been getting together with the federal government and having discussions; having pension summits looking at what they call the pension gap in Canada.
And that pension gap actually exists for a subset of the Canadian population, and that subset are the smaller businesses, the non-unionized, non-nationalized firms that don’t have established pension plans. Because they don’t have established pension plans it’s perceived that that’s the reason we have a pending funding issue with our retirement system in Canada—and it is actually pretty accurate.
What they’re going to do is launch something called a pooled pension retirement plan. This is likely coming some time in 2012. We’re going to get more information about this in December of 2011, and it’s important that everybody understands that this is coming down the pipe. It’s because there is a strong contingent that wants this to be mandatory, that all small businesses in Canada will be forced into participating in the new PRPPs. (Update: the federal government made an announcement about PRPPs on November 17. Click here for more information.)
This is something we should talk about. It’s being done in other countries around the world—the Western OECD countries, and let’s have a look at what the PRPP might look like in 2012.
We don’t know a lot yet because they have kept it fairly well sort of concealed. There is a lot of draft dialogue that is being batted around, and all that’s good. It does look like though it’s going to be made available to anyone that works within that small business environment. That would be not just the employers but the employees as well; as well as the self-employed.
That’s a key area of target for tax policy right now is opening up more opportunities for self-employed people to do things like retirement savings. They tell us they are going to have two classes of members within the legislation. They’ll have different legislation for those different members and that really is going to be the employed—employment contract sort of people, and the self-employed—they’ll have a different set of rules for those.
The whole focus behind the PRPPs is creating a facility that offers lower fees, better standardization and access to investments, portability amongst employers and sort of a product or a feature or a function that makes it more appealing to small business owners. That’s where I believe the crack is in the PRPPs. I don’t really believe there’s a lack of product available, and if you advise small business owners there are decent group RSP Savings programs out there. But this new facility that might be mandatory is going to be focused on offering lower cost and greater portability as its enticement. So watch these PRPPs. Maybe start doing some initial reading now and we can all look forward to updating this podcast when we get more information.
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Ian Quigley is a senior consultant with innovative financial advice firm Qube Consulting . He is an expert in investment, insurance and tax strategies and has developed numerous online courses dealing with these subjects. Find Ian’s courses online at ILScorp. All 12 are included in an Annual Life Subscription or are available for individual purchase. Visit ILScorp’s catalog.