Finance Committee on Feb. 16th, 2012

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. Glover.

We're going to go to Mr. Hoback, please.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

Thank you, witnesses, for being here this afternoon. You have big shoes to follow. The minister did such a great job in the previous hour that I feel for you, but I'm sure you'll do very well.

My questions are very easy. I'm going to pick up where Ms. McLeod left off, and that's on the comparison of PRPPs and RRSPs and the security part. Can you just elaborate on how the security differences are there and what that means to the individual?

[Diane Lafleur]

The key difference, as the minister indicated, is that PRPPs will be supervised by the pension supervisory authority. In order to become an administrator, essentially you'll have to go through a licensing regime and qualify to become an administrator, and there will be ongoing oversight, and administrators will be subject to criteria for licensing, for disclosure, etc. That will be an ongoing process, both at the federal and eventually at the provincial level, so that there would be this additional layer of protection that the minister indicated.

The other thing that is a real benefit to members of PRPPs is that the funds in the PRPPs will be pooled and administered jointly. The scale of these funds is designed to become very large so as to reduce costs and to maintain that low-cost advantage that is not possible in the RRSP framework, where individual accounts have to be maintained, and that adds to the administrative burden.

[Randy Hoback, Conservative, Prince Albert, SK]

Can you elaborate on the pooling of those accounts and what that consists of? If you're an administrator for a fund, would you be pooling all yours into one fund?

[Diane Lafleur]

The design is such that a PRPP administrator can offer essentially the same product choices of PRPP accounts to a number of different employers. All of these different employers contribute into one essentially pooled account, and that offers efficiencies because of scale in the design of the funds.

[Randy Hoback, Conservative, Prince Albert, SK]

Do you envision, then, that you may see different accounts that would have different risk levels based on what the client was comfortable with, such as in RRSPs at this point in time?

[Diane Lafleur]

PRPP administrators are going to be required to offer different kinds of accounts with different kinds of risk profiles, including what we're referring to as a default account. An employee who joins a PRPP through their employer or as a self-employed individual will be given some choices as to what kinds of accounts they want to invest in.

In a lot of cases it happens that people don't make those choices. In that situation, they will be automatically put into a default account that is designed to accommodate a different range of investment risk options and people of different ages or stages in their careers, etc. If people don't decide, there will be a default option.

[Randy Hoback, Conservative, Prince Albert, SK]

That's very interesting. It goes against what the opposition is saying. They're talking about how when you're close to retirement and all of a sudden the market trends down or cycles down, you'd be in a bad position. But in reality you'll have the options to manage those risks with your administrator, so that as you get close to retirement you may move your cash, for lack of a better word, from a high-risk account to a low-risk account or a medium-risk account. You'll have the ability to do that. Is that true?

[Diane Lafleur]

People will have some choices, but the fundamental point is that administrators will have a fiduciary duty of care to the members of the PRPPs. They will have to invest in the best interest of those members and they'll have to apply a prudent person's approach to those investments.

[Randy Hoback, Conservative, Prince Albert, SK]

With regard to the administrators themselves, will they be based on a federal program to be classified as an administrator, or would it be province by province to become—

[Diane Lafleur]

I'm sorry, I didn't hear that question.

[Randy Hoback, Conservative, Prince Albert, SK]

To become an administrator, would you go through a process province by province, or would you do a federal process? How does that work?

[Diane Lafleur]

Well, potential administrators will need to apply to the different jurisdictions they want to offer PRPPs in. At the federal level they would apply to OSFI, and at the provincial level they would go to the relevant administrator.

The legislation builds in the ability of the different jurisdictions to delegate the licensing process to each other, so if a province does not want to build the structures needed to essentially create the licensing scheme, they could by agreement delegate that to OSFI, for example.

[The Chair, Conservative, James Rajotte]

You have about 20 seconds.

[Randy Hoback, Conservative, Prince Albert, SK]

How do you envision the rollout with the provinces?

This is probably not a 20-second question, but I'll do it quickly. As we move forward, assuming this legislation passes, how quickly do you imagine the provinces jumping on board? I know we have Quebec already on board.

[Diane Lafleur]

I don't feel it's my place to speak for the provinces.

[Randy Hoback, Conservative, Prince Albert, SK]

Is your crystal ball not working?

[Diane Lafleur]

I don't think I want to venture down that road.

[Randy Hoback, Conservative, Prince Albert, SK]

Okay, I understand that. I respect that.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Hoback.

We'll go to Mr. Marston again, please.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Thank you, Mr. Chair.

I want to say that I'm sure the officials here have done a good job and due diligence in putting together the framework the government has asked them to do, so there's no way I am taking potshots at anybody in what I'm talking about.

In the unionized workforce you have Canadians who go to work every day and they're in a pension plan because of the negotiated contract. They don't get to opt out; they're in that plan. For years, hundreds of thousands of Canadians had a pension plan they could count on at the end of the day because the obligation on the employer's side was to top up that plan should there be a market shortfall. It served them well.

In your opinion, if a person were to put away.... I'll back up a little bit; I'm kind of interrupting myself.

With regard to the opening for the amounts of money that somebody could put into a PRPP, the top would be, what, roughly $30,000 that they could put into it in a year?

[Diane Lafleur]

Well, it's fully integrated into the pension limits that exist under the tax rules.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Generally speaking, it would be in that area.

[Diane Lafleur]

I don't have the numbers at hand, but it's 18% of your income, up to a maximum.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Let's say it's $20,000, just for the discussion. I'm not really trying to peg you down to a specific number.

My point is that the proposition we're trying to get forward on the CPP is that a person who invests $161.20 per year would see their CPP doubled, from $918 a month to over $1,800.

In order to get a return of $900 a month by going into a PRPP, you'd have to have hundreds of thousands of dollars in there, which the average person is not going to make. If they have the latitude to be putting, let's say, the $20,000 figure in, they probably would have done that in an RRSP already.

We're having a problem with the balancing of the potential outcomes of the two programs comparatively.

I do have one very specific question, though. We had the parliamentary secretary talk about portability. Is that portability within a province or within the country?