Mr. Speaker, I am honoured today to add my voice in support of today's debate on pensions and retirement income security.
I have been a small business owner in Canada for 20 years. I have also worked for larger corporations. Therefore, I think I should have some knowledge of retirement and what it means.
Contrary to what the hon. members of the NDP may choose to believe, our government continues to work with all stakeholders to improve the security of retirement benefits in Canada. Promoting the retirement income security of Canadians is an important goal of the Government of Canada. We will continue to ensure that our policies, programs and services meet the evolving needs of Canada's workforce and retirees. We recognize the contribution seniors have made, and continue to make, to our nation.
In the wake of economic shocks from beyond our borders, Canadians are concerned about the long-term viability of their pension plans. We are listening to their views on how we can leverage Canada's financial sector advantage to strengthen the security of pension plan benefits and ensure the framework is balanced and appropriate. We are working toward a permanent, long-term solution to protect the pensions of Canadians.
In our effort toward greater retirement security for Canadians, our government is building on the inroads already made to strengthen the framework by federally-regulated private pension plans.
In 2009 we consulted Canadians from coast to coast on these earlier initiatives and subsequently introduced a number of significant changes based on the advice of individual Canadians. Our action included ensuring that an employer fully fund benefits if the pension plan was terminated.
Since taking office in 2006, our government has also introduced several important improvements to the tax rules for registered pension plans, that is RPPs, and registered retirement savings plans, also known as RRSPs. For example, the age limit for converting RPP and RRSP savings into a retirement income vehicle was increased to 71, from 69. Changes were introduced to allow more flexible phased retirement arrangements under a defined benefit RPP. The surplus threshold above which employer contributions to a defined benefit RPP must be suspended was increased to 25%, from 10%.
Let us talk about the pooled registered pension plans.
These private pensions plans already benefit from Canada having one of the soundest financial sectors in the world. With Bill C-25, our government would harness this advantage and further strengthen Canada's retirement income system.
Similar to my colleagues on this side of the House who have already spoken on the subject, let me say that pooled registered pension plans, or PRPPs, would mark a significant step forward in advancing our retirement income agenda and would be a vital improvement to Canada's retirement income system.
The emergence of the PRPPs is the culmination of a journey that began in December 2010, when Canada's finance ministers agreed on a framework for the introduction of PRPPs. This collective approach was taken because PRPPs were considered the most effective and appropriate way to target those modest and middle-income individuals who might not be saving enough for their retirement, in particular, those who currently do not have access to an employer-sponsored RPP, registered pension plan.
There are a number of factors that contributed to this decision by the finance ministers, including declining participation in employer-sponsored RPPs. The proportion of working Canadians with such plans has declined from 41% in 1991 to 34% in 2007.
Some Canadians may also be failing to take full advantage of the discretionary savings opportunities offered to them through individual structures like the RRSPs. Participation in RRSPs reached a peak of 45% of the labour force in 1997, before levelling off to 39% in 2008.
While aggregate RPP/RRSP participation rates for middle and higher-income earners are quite high, research nevertheless indicates that a portion of Canadians may not be saving enough.
PRPPs would address this gap in the retirement income system by providing a new, accessible, large scale and low cost defined contribution pension option to employers, employees and the self-employed. They would allow individuals who currently may not participate in an employer-sponsored pension plan, such as the self-employed and employees of companies that do not offer a pension plan, to make use of this new option.
This is especially important for millions of small business owners and their employees, who will now have access to large-scale, low-cost pension plans for the very first time, with professional administrators working to ensure that funds are invested in the best interests of the members.
Since these plans will involve large pooled funds, plan members will benefit from the lower investment management costs associated with the scale of these funds. Essentially, they will buy in bulk.
This sentiment is echoed by Dan Kelly, the senior vice-president of legislative affairs for the Canadian Federation of Independent Business, who believes that PRPPs will help deliver on the promise of a lower cost alternative for small business owners and that the pooled feature should allow lower costs than traditional pensions as there will be a much larger group in the pension vehicle than in traditional arrangements.
Similarly, the president of the Canadian Bankers Association, Terry Campbell, agrees that “PRPPs will make it possible for small and medium-sized businesses to offer to their employees registered pension plans that will be simple to administer. As well, PRPPs will allow self-employed individuals to participate in private sector pension plans for the first time.”
The design of these plans will be straightforward. They are intended to be largely harmonized from province to province, which will also facilitate lower administrative costs and portability. These features will remove barriers that might have kept some employers in the past from offering pension plans to their employees and that prevented employees and self-employed individuals from participating in large-scale pension plans.
Moving forward, we understand that Canadians want their governments to work together to deliver results for them, and the PRPP is a prime example of what we can accomplish for Canadians when we do.
The bill before us today, the PRPP act, represents the federal portion of the PRPP framework and is a major step forward in implementing PRPPs.
In addition, the tax rules for PRPPs have been developed by the Government of Canada and were released in draft form for comment on December 14, 2011. The tax rules for PRPPs will apply to both federally and provincially regulated PRPPs.
Once the provinces put in place their PRPP legislation, the legislative and regulatory framework for PRPPs will be operational, thereby allowing PRPP administrators to develop and offer plans to Canadians and their employers.
As Frank Swedlove, the president of the Canadian Life and Health Insurance Association, stated, the PRPP is a great opportunity to make a fundamental difference in the landscape for pensions in Canada and we hope the legislation reflects that opportunity.
Once implemented, PRPPs will be a key element of the third pillar of Canada's retirement income system, which provides tax-assisted vehicles to help and encourage Canadians to accumulate private savings for retirement. PRPPs will complement and operate alongside RRSPs and employer-sponsored RPPs.
As I noted at the outset, we have already taken significant action to strengthen the existing elements of this pillar, like RPPs and RRSPs.
RPPs are sponsored by employers on a voluntary basis and can be either defined contribution or defined benefit plans, with employers, and often employees, responsible for making contributions.
RRSPs are voluntary, individual, defined contribution savings plans. Employers may provide a group RRSP for employees and may remit a share of contributions on behalf of their employees.
Contributions to RPPs and RRSPs are deductible for income for tax purposes, and investment income earned in these plans is not subject to income tax. Pension payments and withdrawals are included in income and are taxed at regular rates.
The cost of tax assistance provided on retirement savings is currently estimated at approximately $25 billion per year in foregone revenue for the federal government, and about one-half that amount in foregone provincial revenue.
Of course, tax-assisted private savings works hand in hand with the other pillars of Canada's retirement income support system. That includes the old age security, OAS, and guaranteed income supplement, GIS, programs, which provide a basic minimum income guarantee for seniors; and the Canada pension plan, CPP, and the Quebec pension plan, QPP. These are mandatory public targeted benefit pension plans that provide a basic level of earnings replacement for all Canadian workers.
We have a solid and inclusive system, but our government is continually looking for ways to improve it. The road ahead will likely include more discussion between Canadians and government at all levels. As these issues are complex, we cannot force a decision without understanding the long-term implications for both Canadians and the Canadian economy. We need to get this right, and so far I firmly believe we have.
Over the past two years, our government's commitment to a stronger system has taken my colleague, the Minister of State for Finance, to communities across the country, consulting with Canadians, engaging in challenging the opposition parties in constructive dialogue, discussing key considerations with business and labour groups and receiving valuable input from some of the most respected experts in the retirement income field.
Passage of this legislation being debated today will mean that we have made real progress as a result of these efforts. It is not just the Government of Canada that understands this. B.C. finance minister Kevin Falcon recently stated, “The province supports an initiative where people currently without occupational pension plans are able to take advantage of a low-cost option”.
Working together, I am confident we can get these important new retirement vehicles up and running for Canadians in a timely manner. We have the support. According to Tom Reid, senior vice-president of group retirement services at Sun Life Financial, “The PRPP legislation is an important, much-needed and well-targeted reform to Canada’s retirement system. It reflects an equitable balance of responsibility among individuals, employers and government that is key to the success and sustainability of our world-class pension system.”
In addition, the Canadian Taxpayers Federation's federal and Ontario director Gregory Thomas called the PRPP legislation good for Canadians planning for retirement and for taxpayers. He stated that “Canadians will be able to save more for retirement with this new pension plan. People saving for retirement will enjoy lower costs and more flexibility throughout their working lives.”
Through the cross-country consultations, Canadians made it clear that this is an issue too important to get wrong. While our government is determined to make it even better, I should stress that Canada's retirement income system has already been recognized around the world by experts like the Organisation for Economic Co-operation and Development, the OECD, as a model that succeeds in reducing poverty among Canadian seniors and providing high levels of replacement income for retired workers.
While the OECD has reported that the Canadian poverty rate in the mid-2000s among seniors was at 4.4%, one of the lowest rates in the OECD compared to the OECD average of 13.3%, the poverty rate is defined as 50% of the medium income in our country. The average income of Canadians aged 65 years or over is about 90% of the average income of all Canadians, which is the third highest of selected OECD countries.
Canada's seniors have worked hard to build a better country for future generations and today's workers should be given every chance to follow in their footsteps. Our record shows that our government is committed to the financial well-being of Canadian seniors, as well as many Canadians who are currently still working to realize their retirement dreams. They deserve not only our respect but also our support to allow them to enjoy their later years after a lifetime of contributing to our society.
The PRPP is the latest in a range of government measures providing them with just the support they need. I would therefore encourage all members of the House to vote in favour of this bill and join the government in building an even stronger retirement income system for the future.