Thank you. Good afternoon.
I would like to thank the committee for this opportunity to provide the banking industry's perspective on pooled registered pension plans. The Canadian Bankers Association represents 53 banks operating in Canada, banks which are well-managed, well-capitalized, and which operate in a competitive market with strong prudential oversight.
A strong and healthy banking system is the cornerstone to a strong economy. It is an essential component in helping small businesses grow and thrive and helping Canadians to buy homes and save for education and retirement. We believe that banks and other financial institutions can also make a significant contribution to closing the gap in pension plan coverage for several million Canadians, and that is what I want to speak to you about today.
It is our view that, designed properly and subject to an appropriate regulatory regime, PRPPs have the capacity to achieve the government's objectives of substantially increasing both the number of Canadians who participate in a pension plan and the number of employers who provide such plans. This will be achieved by making available a low-cost pension savings product that is attractive to employers and employees as well as to self-employed Canadians.
The PRPP offers opportunities and incentives to save while ultimately letting individuals decide how they do so. Canadians, particularly employees of small and medium-sized businesses and self-employed individuals, will have the ability to participate in structured pension plans, meaning that contributions will be locked in for retirement—options that many currently do not have.
For those who tend to avoid making active decisions about their retirement investments, PRPPs will have a default option that combines capital protection and growth. For those who wish to take greater control of their investments, PRPPs offer advice and more sophisticated investment options.
For employers, the PRPP allows SMEs to provide a pension plan to their employees. While many employers recognize that pension plans can be an important part of their total employee compensation package, the options available under the current regime are costly and administratively complex, and they contain some risks that smaller employers are simply not prepared to take. Group RRSPs go partway to addressing these challenges, but PRPPs go one step further. As currently drafted, employers would have a limited set of obligations and responsibilities under the PRPP and thus would bear fewer risks. Those risks and responsibilities would be borne by plan administrators; that is, financial institutions.
Banks are well-placed to deliver a low-cost pension savings vehicle to Canadians. Banks are able to leverage their relationships with more than one million SMEs across the country to provide them with information about PRPPs and how they work. This broad reach ensures that the federal government's target market for PRPPs is developed quickly and cost-effectively. Moreover, the banks can rely on the skills, resources, and experience of their broader financial group to effectively deliver PRPPs.
Let me address four key factors that will be crucial in ensuring the success of the PRPP and the achievement of the government's objectives, particularly the objective of keeping costs low.
First, there will need to be a regulatory regime that does not impose costs in excess of what is needed to provide employee protection appropriate for the nature of this product. This is especially true for the default investment option.
Second, there must be a sufficient number of participants that a minimum efficient scale can be achieved. This requires that the PRPP be appealing to SMEs and individual workers, and that requires that there be few obligations and risks to SME employers.
Third, there must be a high degree of regulatory harmonization across federal and provincial jurisdictions and a simplifying and a streamlining of the supervisory requirements, again with a view to federal and provincial harmonization. The degree of harmonization that appears to have been achieved to date, as outlined in the December 2010 framework, along with more recent efforts, is commendable.
Fourth and finally, to make the PRPP successful, provincial governments need to adopt companion legislation to enable the PRPP to be provided to provincially-regulated businesses. We ask committee members to bring this issue to the attention of their provincial colleagues to ensure that employers and employees in all parts of Canada have access to this savings tool.
I look forward to your questions.
Thank you.