With RRSP season in full swing, the next few weeks might be the best time for Canadians to meet with a trusted adviser and make long-term decisions about the numerous retirement savings options available to them.
During the past few years, Canada's retirement savings network has undergone some of its most significant changes in decades. Five years ago, the federal government introduced the tax-free savings account (TFSA). Income generated from investments within a TFSA can grow and be withdrawn tax-free.
More recently, the government announced plans to introduce a pooled registered pension plan (PRPP), which is aimed at reversing the decline in the number of Canadians who have a pension plan.
Currently, employees can participate in group RRSPs, defined-benefit (DB) or defined-contribution (DC) pension plans if they're offered from their employers.
PRPPs expand the pool of Canadians who can obtain a private-sector pension to the self-employed and those whose employers have felt providing a pension is too expensive. PRPPs alleviate some of those concerns by giving employers the option to provide a pension but without the requirement of making additional contributions as they do in DB, DC and group RRSPs.
By adding a new pension option, the federal government hopes to encourage more Canadians to save and reverse the decline in the number of private-sector employees covered under a pension plan.
According to Statistics Canada, pension coverage of private-sector employees has continued to fall since 2008, even though the country recovered all the jobs lost following the global financial crisis.
Given they provide limited incentives for employees to contribute, PRPPs have received a mixed reception. (See "Seeking wins from retirement losses" – BIV issue 1154, December 6-11, 2011.)
Because PRPPs will be added to the alphabet soup of retirement vehicles available, young workers will need to understand the options available to them. The differences between pension plans can mean the difference between spending one's twilight years on a beach or behind a fast-food counter. •