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By Jean-Pierre Laporte
Special to the Financial Independence Hub
The Federal Government has started consultations on its newest retirement savings concept: allowing individuals to make voluntary contributions to the Canada Pension Plan.
While details are sketchy, it would appear that basic agreed-upon concepts mean contributions would be voluntary and that employers would not be forced to make or match contributions.
While the Federal Government made it clear that it would not let the Canada Revenue Agency be used by the Ontario Retirement Pension Plan proposed by Premier (Kathleen) Wynne, presumably a voluntary CPP would allow use of the existing machinery to collect these new savings.
The core design issue rests with the form of benefit that this voluntary plan would offer: defined benefit or defined contribution?
If the goal here is to create a supplement to the current CPP benefit, presumably contributions would have to be locked in, and without member investment directions.
The mechanism to convert the fixed defined contributions coming into the supplemental CPP account into defined benefits would have to rely on partial deferred annuities, or self-annuitization.
This would distinguish the Supplemental CPP from an RRSP or TFSA.
No fiduciary responsibilities for employers
The advantages for employers are that they would not have fiduciary responsibilities as is the case with pension plans; and since this would be similar to payroll deductions to purchase Canada Savings Bonds, the adminstration costs would be virtually non-existent. Employers who were contemplating offering a Group RRSP might prefer to make a matching contribution to the S/CPP instead.
While there is no guarantee that the current government will be in office to move the S/CPP file forward, the Liberal Party of Canada had campaigned on this idea (called the Secured Retirement Option) back in 2011, so there may be more on this in the coming months.
Jean-Pierre Laporte, BA, MA, JD is a pension lawyer and CEO of INTEGRIS Pension Management Corp. He can be reached at jp.laporte@integris-mgt.com
A longer version of this article ran at Benefits Canada earlier this week under the headline Implications of the Voluntary CPP for Employers. See also Jean-Pierre’s previous blog on the Hub: Voluntary CPP is an old idea … has its time finally come?
