Good afternoon. My name is Jean-Pierre Laporte. I'm a pension lawyer with the law firm of Bennett Jones LLP in the city of Toronto.
I welcome the opportunity to provide to the committee some expert testimony on pooled registered pension plans. My sense is that Bill C-25, in its current form, is an example of good intentions creating a legislative response that will have numerous unintended adverse consequences. Let me explain myself.
The stated goal of the legislation is to make it easier for Canadians to save towards their retirement. This is a goal that is shared by most Canadians. The vehicle chosen by Parliament is this pooled registered pension plan, or pooled plans. My remarks will explain why pooled plans are unlikely to achieve this goal.
First, at its core a pooled plan is a locked-in RRSP. As such, it shares all of the flaws of the RRSP, which I will discuss later, and has the added disadvantage that it doesn't have a lot of flexibility.
One of its three main deficiencies is that it locks in money until retirement. In other words, withdrawals are strictly restricted until retirement age. This may make sense in a traditional pension plan for someone who has a good salary and where every penny doesn't need to be used up to balance the family budget, but clearly this isn't the population that is targeted by pooled plans. We're talking about small entrepreneurs and their employees, and the self-employed.
The second is that it doesn't compel any employer contributions. This means that 100% of the funding responsibility rests on the backs of those who already have a hard time saving. At least under a defined contribution plan, the Canada Revenue Agency has imposed a minimum 1% employer contribution. I don't understand why the pooled plans don't have that 1% rule.
The third deficiency is that it doesn't give participants the right to vote with their feet. As I understand the legislation in its current form, it is the employer who selects the pooled plan from private sector providers, not the employees. So as long as the participants are employed, if they're not satisfied with the pooled plan, they're stuck with it. This isn't like an RRSP, where if you find higher returns somewhere else, you can always transfer your money.
Let me return to the RRSP flaws. Because it's a capital accumulation plan, the responsibility for the investments rests on the shoulders of the member. The member often is unsophisticated or doesn't have the time or the inclination to become an investment expert. So it ends up that bad decisions are made, which mean lower returns.
Finally, one of the fundamental flaws with all capital accumulation plans, including RRSPs, is that when there is an economic downturn and the value of the assets under management shrink, and you happen to retire at that time, the losses cannot be made up with additional contributions, the way they are in defined benefit plans, like the benefit plan the federal civil servants participate in. So there are no special payments and no way to make up for bad years. You're playing Russian roulette with the savings of Canadians. To me, this is a lot of taxpayer assistance going down the drain after decades of investing, so I have some real reservations about the current legislation.
Thank you for your attention.