Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 22 - Evidence - June 19, 2012
OTTAWA, Tuesday, June 19, 2012
The Standing Senate Committee on Banking, Trade and Commerce, to which
was referred Bill C-25, An Act relating to pooled registered pension plans
and making related amendments to other Acts, met this day at 2 p.m. to give
consideration to the bill.
Senator Irving Gerstein (Chair) in the chair.
The Chair: Honourable senators, last Thursday the Senate referred
Bill C-25, the pooled registered pension plans act, to this committee for
consideration. This afternoon, we will begin our study of the bill.
In the first hour, we are pleased to welcome, as we always are, the
Honourable Ted Menzies, Minister of State (Finance). The minister is
accompanied by officials from the Department of Finance Canada. We are
pleased to welcome Jeremy Rudin, Assistant Deputy Minister, Financial Sector
Policy Branch; Leah Anderson, Director, Financial Sector Division; and Lynn
Hemmings, Senior Chief, Payments, Financial Sector Division.
Colleagues, we have 45 minutes for this session. Minister Menzies, the
floor is yours.
Hon. Ted Menzies, P.C., M.P., Minister of State (Finance): Thank
you. I do apologize, but I have to be covering house duty at three o'clock,
so I will make sure that my learned officials stay behind to answer any
technical questions while I go and do my duty.
We have Yasir Syed with us from the Department of Finance as well.
I appreciate this opportunity to discuss with you Bill C-25, the proposed
pooled registered pension plans act. I am not sure what I will do when it
actually clears the Senate because I have been working on it for so long. I
am sure I will find something else to do. It has been a great challenge, and
I look forward to its passage.
This act will help make Canada's retirement income system more responsive
to the needs of many Canadians. However, let me start by emphasizing that
Canada's retirement income system has served us very well and is serving us
well. We are recognized internationally as having among the strongest of
such systems in the world.
Overall, the system is based, as we all know, on the strength of three
pillars. First, it consists of social security programs such as OAS and GIS.
These programs provide a basic minimum income guarantee for seniors and are
funded primarily through taxes on working Canadians. Our government has a
responsibility to ensure that these programs are available for the next
generation of Canadians. As we all know, Canadians are living longer and
living healthier, and OAS and GIS must change to reflect these demographic
realities. Only by making the changes today will OAS be available for
Canadians tomorrow, for our children and our grandchildren.
The second pillar is the CPP and in Quebec the QPP. These are mandatory
public target-benefit pension plans that provide a basic level of income to
Canadian workers when they retire. I am proud to say that CPP is fully
funded, actuarially sound and sustainable for the long term.
The third pillar is composed of tax-assisted private savings
opportunities to help encourage Canadians to accumulate additional savings
for their retirement. This includes the RPP, registered pension plan, and
the RRSP as well.
While Canada's retirement income system has proven itself effective and
well balanced, in an ever-changing world we must continue to look for ways
to improve it and to assure its long-term strength and sustainability. Since
the retirement income system is crucial to Canadians' financial future, it
is essential that governments make the right choices.
For example, although all Canadians have access to the publicly funded
pillars of the retirement income system, it is estimated that more than 60
per cent of Canadians do not have access to a workplace pension plan at this
time. While participation in retirement savings vehicles like pension plans
and registered retirement savings plans is reasonably high for middle-and
higher-income earners, some Canadians may not be taking and are not taking
full advantage of these personal retirement savings options.
In particular, research conducted in 2009 indicated that a portion of
modest-and middle-income households may be at risk of under-saving for
their retirement and that a gap exists on the voluntary side of Canada's
retirement income system. More recently, the OECD's pension outlook for 2012
remarked that in order to close this pension gap a growing role for private
pensions will be essential. We cannot help but agree.
I firmly believe that the PRPP is the right solution at the right time to
help these Canadians better save for their retirement.
Let us talk about what a PRPP actually is. Pooled registered pension
plans will be large-scale, broad-based pension arrangements available to
employees with or without a participating employer, as well as available to
the self-employed. They will be low cost. By pooling pension savings, the
cost of administering the pension funds will be spread over a larger group
of people. This will allow plan members to benefit from lower investment
management costs; in effect, Canadians will be buying in bulk. The result:
more money in the pockets of Canadians.
In addition, the introduction of PRPPs will mark a significant
advancement in supporting the retirement needs of small-and medium-sized
businesses and their employees who, until now, have not had access to
large-scale, low-cost private pension options. Under a PRPP, most of the
administrative and legal burdens associated with a pension plan will be
borne by a qualified, licensed third-party administrator. This is of
particular importance as these burdens have prevented many employers from
offering a pension plan to their employees. It should also be noted that
these administrators will be subject to a fiduciary standard of care, which
will ensure that the funds are invested in the best interests of the plan
members. The design of these plans will be very straightforward. They are
intended to be largely harmonized between provinces and territories, which
will only encourage lower administrative costs.
Finally, PRPPs will complement and support our government's overarching
objective of creating jobs, economic growth and long-term prosperity.
Some proposals to improve Canada's retirement income system would have
significantly raised mandatory costs for employers and employees. One such
proposal was to expand the CPP benefits. In order to expand the CPP benefit,
contribution rates would of course have to have been increased. This would
mean higher premiums for workers, as well as the self-employed. It would
also mean higher payroll costs for small-and medium-sized businesses.
Simply put, the current economic situation in Europe still unresolved,
our government does not believe now is the time to jeopardize Canada's
fragile economic recovery by imposing a higher payroll tax on job creators.
I think that the CFIB has summed up best:
. . . the PRPP will be a better and more effective option than
mandatory CPP expansion by allowing more employers, employees, and the
self-employed to participate in a retirement savings plan.
Honourable senators, it would seem that many agree with this assessment.
At the 2010 meeting of financial ministers, many of the provinces raised
strong objections to idea of raising the CPP benefits. However, despite
their objectives to expanding the CPP there was unanimous agreement to
pursue a framework for the pooled registered pension plan. By passing this
legislation, our government will be filling a gap in that voluntary side of
our retirement income system and will provide millions of Canadians with
access to a low-cost pension arrangement for the very first time.
I think that the Canadian Chamber of Commerce said it best:
PRPPs can give many businesses, individuals and the self-employed
additional retirement options and many millions of Canadians who
currently lack adequate retirement savings will benefit.
Once the federal legislation has passed through Parliament, the provinces
will need to pass their own legislation before the PRPP framework can become
fully operational across this country. On June 12 this year, the Government
of Quebec introduced legislation to implement their version of the PRPP.
Theirs is called the voluntary retirement savings plan. This is encouraging
and an excellent example of what can happen when governments work together
and deliver results for Canadians.
I thank you for your time and I am happy to take some questions. If they
are really tough, I will pass them off to my officials.
The Chair: Minister, you talked about the three pillars that we
have in Canada. I would like to refer particularly to the third pillar:
tax-assisted private savings opportunities. Perhaps you could help clarify
for us the difference between the PRPPs, RRSPs and TFSAs. That would be
helpful, I am sure, to more than myself on the committee.
Mr. Menzies: I think that is a very good question. Believe or not,
I have answered that a few times in different forums than this, not only in
the House of Commons but to many businesses as well and to many individuals
who have said, -Is this not just another RRSP?'' It is frankly not just an
RRSP. There are many advantages, the first, to me, being the lower cost, the
cost of administration.
As I have said before, the most important outcome to this is providing a
low-cost option that more Canadians can participate in at a low cost. Canada
has been criticized by the OECD for our high management expense ratios, and
the financial sector would say that it depends on the service provided. This
is low cost, broad-based, easily accessible, and the pooling effect is what
will keep the cost down.
Many businesses have also said to me, -Finally we have an option
available where I do not have to carry the fiduciary responsibility and I
can pass that on to my employees.'' Many have said, -I could offer them a
group RRSP, could have done that, but the responsibility is on me as a plan
administrator.'' It will provide a locking-in provision, so you cannot take
that money and go buy a boat with it; there is a locking-in provision that
protects it and the standard of care of the financial institution will help
protect those savings.
The Chair: Thank you very much, minister.
Senator Hervieux-Payette: Welcome. I am struck by the number of
times you have repeated the words -at low cost''. There are dozens and
dozens of pooled funds in Canada with different investors. These funds are
run by private companies and are considered to be very expensive, if we
compare them not only to the European ones, but also to those in the United
How will this fund be administered so as to keep its costs down? What are
the main reasons to believe that it will be a low-cost fund? Even if you
repeat the words -low cost'' 100 times, this will not make it a low-cost
fund if we do not have any guarantees that costs will be low. What factors
will make this a -low-cost'' fund?
Mr. Menzies: There will be in the regulations a requirement for
I have spoken with many of the financial institutions that are interested
and no decisions have been made as to who will be chosen to provide these.
They have said to me that this is so much simpler than what they presently
offer to individual Canadians, whether it is for RRSPs or individual pension
plans. The simplicity is that they are large pooled accounts that through
the pooling process reduce their administration costs. It will be harmonized
from province to province. It will be portable from province to province,
which is not necessarily to do with the low cost, but that is the benefit to
The simplicity of it will keep the costs down. We have had suggested
numbers — I will not repeat them here — and management expense ratios that
are quite low because it is simple. They know it will not be a high-profit
product; it will be a volume product that many of them are looking at
utilizing, as this is in addition to many of their existing customers.
Senator Hervieux-Payette: Does that mean that the department is
going to set a ceiling, and ensure that the government is not constantly
beset with requests to raise that ceiling, because people will be claiming
that salaries are higher, there are more workers, et cetera? Your answer is
that this will be ensured through regulation; but on what basis?
Currently if we think of the Canada pension fund, it is an immense fund,
what I would call a pool, and represents a joint endeavour by many workers
who for all intents and purposes give mandates to various investment groups.
You might say that they manage the fund managers. Their performance is
certainly adequate. The risk is certainly contained, since this is a pension
for all Canadians. So how would the pooled funds compare to the Canada
pension fund, which has performed well, even during difficult years, and is
managed by a federally mandated organization? We were told that it is not
too costly, precisely because it is not administered by the government. It
is administered by specialized, independent entities.
In this case, there will not be a single product, however; there are
going to be several products in this pool. What is the magic formula that
will make this last?
The Chair: Senator, I think I have heard three questions. Can we
let the minister respond?
Senator Hervieux-Payette: It is only one question.
Mr. Menzies: Thank you, senator. Three questions, one simple
answer: competition. This will be a very competitive market.
We had looked at placing a ceiling, putting a cap on the management
expense ratio. I am not good at picking those kinds of numbers. The number I
chose would be the number that every fund would go to. Every administrator
would go to that number, so I probably picked too high of a number. Let
competition decide what the management expense ratio should be.
We have many interested parties. They may not all qualify. I will put
that disclaimer in there. They will have to prove their track record to
ensure that their interests are the interests of the plan members, but
through competition, we will keep the costs low for those individuals.
The Canada Pension Plan has certainly been well managed. The CPP
Investment Board, CPPIB, has done a great job of investing. We have had many
discussions with them about whether they could adapt, whether this could
work for them. They said they could do it, but they are not set up to deal
with individual plans and individual accounts like this. They could do it,
but their management expense ratio would go up because of the extra
Senator Hervieux-Payette: Would the private sector not have the
same expense for individuals?
Mr. Menzies: The Canada Pension Plan is set up as one fund, so
their expenses would go up by who knows how much. We do not know, but they
said their costs would have to go up in the present format.
Senator Tkachuk: Welcome, minister. What kind of institutions
would offer this plan? Who would actually offer the pension plan?
Mr. Menzies: As I say, there will be requirements they will need
to meet. Financial institutions are very interested in this. Some of the
existing pension funds — one that you would be interested in is the
Saskatchewan Pension Plan — have expressed an interest in seeing if they
qualify for this. Pension funds already have the expertise, so they are very
interested in enlarging their pools to keep their costs down.
Senator Tkachuk: Is it like the OMERS?
Mr. Menzies: The OMERS may very well qualify. I would be surprised
if they did not put their name in the hat.
Senator Tkachuk: As well as insurance companies?
Mr. Menzies: Yes, but those companies are under a different tax
regime currently, so it is not unfair to the financial institutions to make
it a level playing field. The pension funds would have to set up a
corporation so that tax requirements for them are the same as for a
financial institution. It is fair and even competition for all of them.
Senator Tkachuk: With respect to opting into the plan, how would
individuals opt in versus small companies that have maybe 200 or 300 people
working for them? Would the OMERS offer one pension plan and everybody would
subscribe to the plan offered out in the marketplace? Is that the way it
Mr. Menzies: Each one of these chosen administrators would offer
different options that an employer can choose from, as well as the
self-employed. Someone who is 25 years old may pick a different fund than
someone who is my age. There will be options within the presentation of each
Senator Tkachuk: If the person has their own RRSP and pension plan
and say their limit is $18,000 or $15,000, whatever it is, will their
deductions be the gross total of both, or will they enjoy an extra benefit?
Mr. Menzies: The sum total of both will only be the maximum RRSP
deduction. We are not taking away from the RRSP. To simply increase the
maximum amount for an RRSP would actually provide an option for those people
with higher incomes. They are not who we are concerned about; we are
concerned about people with middle income, the people who are not now
contributing the maximum to their Registered Retirement Savings Plans.
Senator Tkachuk: In terms of the accumulated effect of deposits,
even cash deposits for short-term investments within the pension plans, I
know that you get a heck of a lot less for a $1,000 deposit at the Royal
Bank than if it was half a million or a million dollars.
Mr. Menzies: Only you would know the top number.
Senator Tkachuk: Mr. Syed, I would think that the returns of
pooled pension funds would be greater by a substantial amount. Maybe you
could help us out with the numbers. Despite what Mr. Menzies implies, it is
not something I know from experience but only from reading about people like
the person sitting opposite from me right here.
Yasir Syed, Senior Project Leader, Payments and Pensions, Department
of Finance Canada: Ultimately, I think the returns will depend on the
whims of the market. Obviously, when they are able to pool more funds from
various sources, from a larger base, that would hopefully lead to lower
costs, which is one of the policy objectives here. They would use the
expertise that we know many of the potential administrators will have. They
will obviously need to demonstrate that they meet certain criteria before
they are able to obtain a licence, one of them being expertise in managing
these pension funds. We hope they would lever that expertise in the way they
manage those funds.
In many cases, they are already in the business, so it is just a matter
of using either their existing pension systems or their existing funds. In
many cases, they could be using the funds they are currently offering to
other members as a means to pool this new cohort they will get.
Ultimately, I think it will depend on the way they manage those funds.
That will be up to each individual administrator.
Senator Tkachuk: I just wanted it on the record.
Mr. Menzies: One addition that I should have mentioned is a number
of the credit unions have expressed interest in this. That is an option that
helps spread it all across the country, if they qualify.
Senator Tkachuk: I think small businesses all across Canada will
take this as a real opportunity. I think this is a great thing.
Senator Moore: Thank you, minister, and your colleagues for being
here today. It seems to me this is another variation of something we
recommended, is it not?
The Chair: I think that will be in his concluding remarks.
Senator Moore: There you go.
Minister, last November when you appeared on the CTV show, you made the
point that Canadians simply are not saving enough. You said that in Canada
since 1991 there is an accumulated $600 billion of unused tax room in RRSPs
and only 8 per cent of Canadians topped up their RRSPs in 2009.
Those are huge numbers and present huge savings opportunities. At the
same time, I think half of Canadians who file tax returns make $30,000 or
less. Has your department looked at what could happen here in terms of the
potential? There is not a lot of money left at the end of a month if someone
is grossing $30,000 a year. Do you have any feeling for what could happen in
terms of getting Canadians to participate and save, regardless of what their
income level is? That would, to me, answer part of your question urging
Canadians to save more for their retirement years.
Mr. Menzies: That is a question that troubles us all: How do you
get low-income earners to save?
One of the policies we are putting forward is actually financial literacy
and getting to young people early on to make some wise choices to start
putting a little bit away. We have all seen the numbers of very little each
month, even if you are a low-income earner. It is amazing how much you have
by the time you reach retirement. That is part of it, and we are looking
forward. We put money aside in last year's budget or the one before.
Jeremy Rudin, Assistant Deputy Minister, Financial Sector Policy
Branch, Department of Finance Canada: The government has set aside money
in two budgets.
Mr. Menzies: Two budgets for a financial literacy leader and it
will be in the Financial Consumer Agency of Canada to see how we can help
people think about this earlier on. I do not know about you, but I did not
start saving early enough.
Senator Moore: Too busy paying off student loans. How do you get
the message out there?
Mr. Menzies: It is tough. It is interesting, because I spoke to a
professor at Purdue University. They have been working on this. I asked if
they had done some analysis at what stage in a young person's life we should
be inserting financial literacy. He said you start at 4 years old, and if
you have not got them thinking about it by the time they are 12, you have
lost them. It was a scary number to me, but if you watch a young person
using a debit card they have no idea; someone has to pay for swiping that
card to get a chocolate bar.
We did some very in-depth analysis which showed that with $30,000 a year
income and less, when they retire, through OAS and GIS, they will have
somewhere in the neighbourhood of 90 per cent of their pre-retirement income
from those two programs. The higher-income people, like Senator Tkachuk and
some of the other guys, have probably saved in another way. It is the middle
ones — the $30,000, to $100,000, to $110,000 — who perhaps have not. This is
another tool. This is not taking away from your tax-free savings account. It
is not taking away from RRSPs. It is another tool, and it is auto enrolment.
As an employee, if your employer enrols you, you have 60 days to overcome
the inertia of being in. You must say, -I do not want to save.''
Senator Maltais: Welcome, Mr. Minister; I have a few quick
questions. They concern Quebec, in particular. We know that the Régie des
rentes, the Quebec Pension Board, is already in place. Will this new system
be considered a complementary system, or one that will be integrated into
the basic QPP system?
Mr. Menzies: Yes, it absolutely is. I have worked with Raymond
Bachand and have met with him on many occasions. I do not want to pick
winners and losers, but he saw the benefits to this. I believe in the
previous budget they spoke of it, in the most recent budget they had
actually financially enabled it, and they are going to put it in place on
the June 12. They put forward legislation; positive there. He and their
cabinet see it as the right direction to go.
Senator Maltais: Let us take the case of public servants in Quebec
who retire between 55 and 60. When they start to draw the QPP, there is an
adjustment that is made between their pension and the QPP. There is a small
decrease, a readjustment, especially if, in addition, they are eligible for
the CPP. There is an adjustment that is made so that a certain maximum is
not exceeded, a certain ceiling; is this going to be affected, or will it
remain largely the same?
Mr. Menzies: It is a technical question, but I do not see it — and
Mr. Rudin can maybe help me out on this — being an impact. This is about
individual savings. It would be treated just like a registered retirement
savings plan and there would be a -decumulation'' phase, whether you put it
in a life income fund or whatever you roll it into. Perhaps Mr. Rudin can
explain it better than I can.
Mr. Rudin: No, minister. You explained it very well.
The integration you are referring to is relevant in the case of the QPP
and also as regards defined benefit pension plans. But in the case of the
registered pension plans, we are talking about defined contribution plans.
So there is no need to align these two types of plans. It is more comparable
to an RRSP than a pension plan, such as the plan for Quebec public servants.
Senator Maltais: One last brief question, Minister. Who is going
to monitor all of this to prevent more cases like Nortel, where workers lost
their pension fund? Who is going to oversee this to ensure that workers and
those with small savings — we are talking about low-income earners — will
not lose what they have invested?
Mr. Menzies: It is a very good question. There are provincial
pension administrators that may provide the oversight to this, but each
province has the option of saying to OSFI, -We would like you to be the
oversight body.'' Some will do that because of the cost of actually setting
up their own pension oversight board. These are treated differently than
RRSPs. They are treated more like a pension plan, so they are actually
overseen by the Pension Benefits Standards Act in Canada.
That is a very good question. That is the fundamental reason for this:
Protecting those funds that people save for their retirement.
Senator Massicotte: Thank you for being with us today, minister. I
know you are surrounded by some very bright people, but I have to admit they
read our report very well. I see you emphasize the professional management
choice, low fees. You have automatic opt-in and have even added a fiduciary
level of care, which is something we pushed hard for. Thank you very much
for reading the report.
Mr. Menzies: You guys and gals do good work.
Senator Massicotte: Having said that, let us talk about low fees.
Senator Hervieux-Payette raised the issue. We all agree this whole thing
will work on two conditions: professional management, which is fundamentally
important and hard to judge, but also low fees. Low is a relative term. Your
answer was competition. I agree that is where the solution should lie. Will
the minister do something special?
We live in, roughly, a small country. If you look at the mutual fund
industry, we have what you would call competition. However, many reports are
written out there that our fees are relatively high compared to the
competitors. They argue that we provide more service for those fees, but,
irrespective of that, people come back and say we are paying a lot of fees
for management advice.
How do we get there? I am concerned that if you just let the market and
competition dictate it, we may end up with the same thing as mutual funds.
They argue it is low, but it is not very low. Will you coordinate public
bids where people have a right to bid to offer their services, or will you
simply allow every company to choose whoever is out there? I would be
concerned that if we did that, we might not get where we want to go.
Mr. Menzies: The regulations will require low cost. I keep going
back to this. If I had picked a number, I probably would have picked a
number too high. I want to see competition. I am a free marketer; I want to
see competition to keep the cost down.
However, it will be very simple to administer the program and very simple
for the employer. He just chooses a fund and offers it to his or her
employees. Keeping it low cost is important.
Harmonizing is the one challenge we have. I continue to talk to the
provinces on an ongoing basis to ensure that we get this as harmonized as we
can, not only so that it is portable from province to province but to keep
the costs low. Harmonization will keep the costs low.
Competition will be there, but if we can keep it simplistic — a very
narrow number of options to provide to these individuals. There are no
Regarding the mutual fund industry and many of the RRSPs, there is a lot
of financial advice that goes with them and it all comes at a cost. This is
very simple. There is not likely to be a fan-out of individuals going out
there, pitching the benefits of this particular fund. It will be very
simple: broad based and pooled assets. We should see some large pooled
The one thing we have not talked about is the benefit of having more of
these large pooled funds for investments in Canada.
Senator Massicotte: I hope you are right. The RRSPs and the mutual
funds will argue that it is very simple. An investment syndicate was here
about a year ago. It is very simple. They think their fees are relatively
fair. As you know, many independent people have said —
Mr. Menzies: The OECD does not think so.
Senator Massicotte: Exactly.
I hope you get there, but I suggest you may have to coordinate. In
Canada, we are not known for a highly competitive environment, and I hope
the government will do something to induce competition.
Let me go on to my next question. You have decided to impose a fiduciary
level of care, which I think is very good. To a lot of people, that does not
say much. However, it basically says that the counsellor or the investor —
the one giving advice — must behave in the best interests of the investor at
all times. Meanwhile, in Canada, the regime for investment counsellors has
no fiduciary level of care; it is a reasonable level of care. Often their
loyalty is to their employer, which means higher fees, higher commissions,
and so on.
Would you consider applying that standard, as other countries have, to
maybe all investment advisers, including outside this pension program? Why
not mutual funds? Why not investment counsellors?
Mr. Menzies: It is an interesting question. Perhaps we should pass
that one on to Minister Flaherty and see what his thoughts are. It is an
observation, because we have been criticized by outside third-party
Senator Massicotte: Many other countries have gotten there, such
as the Netherlands.
Mr. Menzies: Unless one of my officials wants to comment on that,
I think that would be something that a Senate committee might recommend to
Senator Massicotte: We have. You have not read that report.
You basically said the employer will be choosing the investment manager
or counsellor. If that is the case, does the legislation provide that it is
totally an independent choice, or will it be like the pharmaceutical
industry or the investment counsellors industry where there are trailer fees
where the employer could benefit financially from choosing a certain
counsellor and not another, therefore resulting in a distorted marketplace?
Mr. Menzies: They are all honest. We know that. We were concerned
about that, as well, and we have actually put in the regulations that there
will be no enticements allowed.
Senator Massicotte: No free trips.
Mr. Menzies: No. We were even concerned about a business person
having had previous business with this financial institution that you
thought actually had the best plan to offer. We need to ensure there is a
barrier between that, and we put that in the regulations to make sure that
does not happen.
You have good questions. You have thought of it all, too.
Senator Stewart Olsen: Thank you for being here, minister. My
question is fairly simple. I am confused as to how each province passes
enabling legislation if they are in agreement with this. Do you have a
framework that they have to abide by if they are to come in under this big
umbrella? Can they all be different names? I am concerned that perhaps
people will not understand. As they go province to province, everyone has a
different name for this pooled pension. How will you manage, province by
province, so it does not become a piecemeal approach and that it gives each
individual the benefits that we want to give them — the portability, et
Mr. Menzies: Thank you, senator, for that question. That certainly
was a concern, and we always face challenges when we are dealing with the
provinces. We cannot dictate to them. As I say, Quebec has a voluntary
registered savings plan. It is a PRPP. They wanted to give it a different
moniker. Obviously, we cannot stop that.
Some of the other provinces may do the same thing. As I say, Saskatchewan
has their SPP, which is similarly modelled, or maybe we modelled ours after
SPP. You can go back and tell your premier that.
Harmonization is the critical point. Our enabling legislation is actually
quite broad, to allow provinces to be able to use it as a template. They can
adopt it 100 per cent if they choose. They can make it more definitive if
The pooled registered pension plan must follow the same criteria and be
harmonized — so it is portable from province to province to province. Those
are the fundamental requirements that we are asking. We are encouraging, as
I say, all the provinces to move forward with this, because we would like to
get it going. However, until it is all across the country, we cannot do
Senator Harb: Thank you very much for your presentation. When we
were having hearings on this matter, a number of witnesses who appeared
before the committee told us that one of the big problems for low-income
people is the fact that you put your money in RRSPs when you are at a low
tax rate. Then, when the time comes to pull it out, you take it out at the
high rate. Not only that, you find yourself being penalized with your Old
How does this differ from, say, someone who is making a contribution to
an RRSP when it comes to the time of taking out the money?
Mr. Menzies: It does not because it fits within the same saving
room as the RRSP. There are lots of options for the -decumulation'' phase
of that, but it will face the same taxes as anything else.
You can use a tax-free savings account. If you think your tax rate is
lower now than it will be when you retire, you can put your money in a
tax-free savings account. That option is still there.
Senator Harb: In terms of a ceiling, it does not change anything.
You are not increasing the pie.
Mr. Menzies: No. Do not forget that people are not using the whole
Senator Harb: For example, I am a low-income income person and I
want to take my money out when I am retiring.
Mr. Menzies: Is that a statement?
Senator Harb: No, it is a hypothesis. Without any tinkering, you
will allow me to withdraw my money at the same rate that I contributed in
terms of the tax benefit. What makes you believe this will work?
Mr. Menzies: It is a simple process that people have. It is
another option. As I say, we are not trying to take anything away from
RRSPs. We are just trying to provide an option. CPP works well because the
deduction comes at source. This comes at source. You will quite quickly, I
think, get accustomed to the fact that there is a little less on that
paycheque, especially when you can see you have a fund building up.
In a large pooled fund, that will actually return you more in the end.
Mr. Rudin can give you the number for what it costs the fisc each year for
RRSPs. It is a lot of money. If we are going to provide more room for you,
you have deferred your taxes all along by putting it in an RRSP or PRPP,
then for us to increase the tax exemption at the end, it is costing the
government an awful lot of money.
Senator Harb: Senator Moore wanted to know if this will be
reviewed after a period of time to assess whether or not it is working. I
believe it will be reviewed to find out whether it is working or not.
Mr. Menzies: I think it would be. I have not talked to Mr. Rudin
about it, but I think it would be wise.
Mr. Rudin: We think it is a very good idea, and indeed, I think it
would be useful, after a number of provinces have implemented it, to look at
it together, as we have worked together to develop the framework.
Senator Harb: Dealing with the locking in, presently, with the
RRSP scenario, people cannot plan to withdraw money based on their
circumstances. I know that you are saying here that you want to lock it in
except if some of the jurisdictions choose to unlock their contribution
under certain circumstances. I think it would be very important to provide
flexibility when it comes to regulations. If I am putting my money in and
for whatever reason my situation has changed and I wanted to take the money
out, it is my money, and after a second attempt I will be able to take it.
In other words, it would allow the person who is making the contribution to
be the king at the end, because we are dealing with his or her money.
Mr. Menzies: We have put in a clause for critical illness, or
Senator Harb: Thank you.
The Chair: We have five minutes for Senator Ringuette's question,
and then the minister has to leave.
Senator Ringuette: I will go directly to the most important
question then. Clauses 78, 80 and 81, as a process, deal with the Bankruptcy
and Insolvency Act and provide for these pooled plans to have secured status
in case of bankruptcy.
Mr. Menzies: Where were you reading from?
Senator Ringuette: It is clauses 79, 80, 81 and 82 in regard to
the Bankruptcy Act. This provides for the pooled registered pension plans to
be protected re unfunded portions from the employer and that employer goes
through a bankruptcy. Why are you moving to securitize these pension plans
through bankruptcy and not all the other pension plans that we have in the
different corporations in Canada, i.e., Nortel?
Mr. Menzies: This is going forward with the pooled registered
pension plan. We wanted to ensure that it was protected. We are certainly
concerned with an employer contribution, and we want to ensure that the
employer cannot take that contribution back if he or she gets into trouble.
We felt it was appropriate.
Senator Ringuette: Am I to believe that your government now will
move toward that protection?
Mr. Menzies: Probably no faster than your government did.
Senator Ringuette: I think that the Nortel issue was certainly a
Mr. Menzies: A provincial issue, by the way.
Senator Ringuette: — for many people, especially the government.
Mr. Menzies: For a long time, yes, it was.
Senator Ringuette: As a follow-up, I have practical question. You
said earlier that the amount would be deducted directly from the paycheque
of the employee. Will that amount be provided directly to the plan via the
employer or via the plan administrator? Those are two different issues.
Mr. Menzies: It goes directly to the administrator.
Senator Ringuette: It is not the employer that retains the amount
and then gives it to the administrator? That could be a little tricky again.
Mr. Rudin: This is the issue that we were just discussing. In the
event that an employer, for example, enters into bankruptcy without having
completed the transfer of the employees' funds to the administrator, those
are protected in the bankruptcy. There is this issue that the funds may be
with the employer for a short period of time, and that needs to be
The Chair: I am going to interject. The minister has to excuse
himself. The members of the Finance Department will remain for another 10
minutes so we can continue with the discussion.
Minister, on behalf of all of us, thank you very much for your
Mr. Rudin, would you like to continue with your answer to Senator
Senator Ringuette: This is very important, and I hope you
understand. We do not want a situation happening where the employer has
retained funds from an employee's paycheques and not made the contribution
to the plan. We do not want that situation.
For instance, is there a number of days that the employers will be
allowed from the time they retain the employee contribution to it being
deposited to the plan? This is very important. Right now, we might not see
those details. When you come into a bankruptcy situation, this is pretty
Mr. Rudin: I agree, Senator Ringuette, that it is very important
to protect the employee contributions and to ensure that they get to the
administrator. You need to do that both on an ongoing basis and in the
context of bankruptcy. The issue of bankruptcy is dealt with in the
legislation because that requires an amendment to the bankruptcy statutes,
and the supervision and enforcement of remittances outside of the context of
bankruptcy will be dealt with in the regulations.
Senator Massicotte: Let me repeat this. My understanding of the
existing law, never mind your legislation, is that when an employer takes
money that belongs to the employee by way of a deduction off his salary,
legally, that is trust funds. That is not his money and it cannot be on his
balance sheet. In fact, if that money is not delivered to the administrator,
the board of directors is personally held liable for that, for the
insurance. Therefore, it is not their money. I do not see a concern about
that issue of a deduction that is not remitted. It could be, but there is
heavy responsibility for the board if any company is in a bit of trouble. If
you have ever sat on a board, they get a report every month that says that
money has been remitted, because they are personally held liable.
I think the question is about employer portion. Employers in this
program, as I understand, have a right to say they will contribute or not
contribute. Let us say they decide to contribute. It could happen that there
is a bankruptcy and they are in arrears relative to the contribution. When I
read the clauses that Senator Ringuette was referring to, it is not clear.
It basically says that that obligation is guaranteed by the assets of the
company, but is it in priority to the secured lenders? Where is it in the
creditor status? I presume it is subsequent to the secured creditors and
before the general creditors. Am I correct?
Mr. Rudin: I will try to answer this question. If I get it wrong
or give only a partial answer, my colleagues will intervene.
I believe this will depend on the status of the employer's decision to
contribute. If the employer decides, essentially unilaterally, to make a
contribution, and it is not part of a collective agreement with the
employees or part of the employees' contract, then the employer can cease to
make those contributions at their own discretion. If, however, they are
contractually obligated to do that, then it would be regulated in that way.
Senator Massicotte: The proposed legislation is not clear. Where
does it rank as a creditor?
The Chair: We have had a lengthy supplementary and I have to give
it back to Senator Ringuette.
Senator Massicotte: I am trying to get the answer.
Senator Ringuette: You say it is going to be in the regulations.
This needs to be extremely clear. There must be a period established that
the employer takes the contribution that he directly deducted from the
employee's pay, because those are earnings. There must be a limit on the
period of time that he takes these contributions and puts it into the plan.
Will the regulation address this very serious concern?
Mr. Rudin: Yes.
Senator Ringuette: A person who has an RRSP, can they take their
current RRSP and transfer it to this PRPP plan?
Mr. Rudin: We are looking at that in the context of regulation. I
think the question will be whether that is an option from the
administrator's point of view or whether administrators would view that as a
requirement. We will see where the regulations go, but we are looking at
making that possible.
Senator Moore: I think the questions and the caution that Senator
Ringuette raises are very important. Listening to this, I am wondering who
designs the plan. Is it the administrator or the employer? Does that design
set out the time period when the monies from the employees or from the
employer must be handed over to the administrator so there is not a drag?
What is the role of the administrator? Does the administrator call up every
month? How do you see this happening? How do you see the program working?
That is a very important point that Senator Ringuette raises.
Mr. Rudin: The plans will be designed by the administrator and the
administrator will handle most of the operations of the plan but, as we are
discussing, cannot invest money that has not yet been remitted to them. The
process of remittance and monitoring that the remittances come in will be an
Senator Moore: Is the additional duty on the administrator to
oversee that and not just rely on the employer? I think that is very
critical, Mr. Rudin.
Mr. Rudin: I understand that. If I am not mistaken these are
issues we are looking at in the development of the regulations and we are
noting the input we are receiving today.
Senator Ringuette: Can the committee have some input into the
regulations that you put together so our concerns are addressed?
The Chair: State it. Go ahead. Is there something you want to
indicate to him?
Senator Ringuette: The disbursement of retained fund contribution
to the plan is very important. You need to clarify also this bankruptcy
issue, if it is the employee retained contribution only that is being
protected through the bankruptcy process, and/or the employee and the
employer's contribution to the bankruptcy process. It is not clear at all in
this legislation we have before us. Either we clarify the legislation or it
should be well identified in the follow-up regulation that you will be
Senator Massicotte: I understood her question was when the
employer contribution is not funded, where does it rank in the bankruptcy?
That is what she is asking. Does it rank after the secured creditors, before
the general creditors, or we do not know?
Mr. Rudin: I believe it will depend on the nature of the
employer's obligation, but I would be happy to come back to the committee
with a more detailed answer.
Senator Massicotte: If you could.
Nowadays, as you know, employees roll off and they change jobs often and
their average term of employment is 7 years, compared to 30 or 40 years. Is
this plan organized so there is mobility so they can take their savings
portion along with their employee contributions and move the plan with their
Mr. Rudin: Yes, portability is a very important part of the
The Chair: Thank you kindly.
Mr. Rudin, Ms. Anderson, Ms. Hemmings and Mr. Syed, we thank you very
much on behalf the committee.
Honourable senators, in this second session we will hear from three
organizations. We are very pleased to welcome again Mr. Frank Swedlove — he
is becoming a regular here at our committee — President of the Canadian Life
and Health Insurance Association Inc.; Marion Wrobel, Vice-President, Policy
and Operations with the Canadian Bankers Association; and Susanna
Cluff-Clyburne, Director, Parliamentary Affairs, the Canadian Chamber of
Colleagues, again we have one hour for this session. Mr. Swedlove, we
will hear from you first, and then Mr. Wrobel followed by Ms.
Frank Swedlove, President, Canadian Life and Health Insurance
Association Inc.: It is always a pleasure to appear before the Standing
Senate Committee on Banking, Trade and Commerce.
Mr. Chair, I am very pleased to have the opportunity to be here today on
behalf of the Canada Life and Health Insurance Association, and to share our
views as the Senate Standing Committee on Banking, Trade and Commerce
considers Bill C-25, the Pooled Registered Pension Plans Act.
The CLHIA is a voluntary association whose member companies account for
99 per cent of Canada's life and health insurance business. The industry
provides a wide range of financial security products, such as life
insurance, annuities and supplementary health insurance, to about 26 million
Canadians. Also, over two thirds of Canada's pension plans, primarily
defined contribution plans for small-and medium-sized businesses, are
administered by Canada's life and health insurers.
We commend the government for introducing Bill C-25. It targets the gap
in Canada's retirement savings system that was identified in Jack Mintz's
2009 research for the joint working group of finance ministers that modest
and middle-income Canadian households may not be saving enough for
retirement. It builds on the consensus among all federal, provincial and
territorial finance ministers. It does so by seeking to strengthen the third
element of our three-pillar retirement saving system, namely private-sector
The goal of the first two pillars — the public part, through OAS/GIS and
CPP/QPP — is to provide a minimum income to meet basic needs, and Canada is
recognized internationally as doing a very good job of that. It is the third
pillar — private sector savings through workplace plans and individual
savings — that is intended to provide income beyond the basic needs. And
this is where the shortfall exists, particularly with those who do not have
access to a workplace retirement plan.
We believe that PRPPs can be a vehicle to make a fundamental difference
to the retirement saving landscape for Canadians. The keys to their success
will be their low cost; pooling, which will help to enhance scale and
efficiencies; simple designs, which will help keep costs down; professional
administrators, who will relieve small-and medium-sized businesses from the
administrative and legal burden that prevent many businesses from offering
retirement plans; harmonization across the country, which will be important
for gaining the scales and efficiencies so important for low costs; and
automatic features that will provide behavioural nudges to encourage people
to start savings, with appropriate opt-out provisions, of course.
We are hearing that small businesses are keenly interested in PRPPs. We
commissioned a survey of over 800 small-and medium-sized businesses a few
months ago, and I would like to highlight some of the findings.
First, and hardly surprising, the smaller the company the less likely
they are to have a workplace retirement plan. Second, two thirds of
respondents said they would be interested in offering PRPPs. Third, over 70
per cent of that group said they would be interested in contributing to the
PRPPs, even though they would not be required to. Finally, over 70 per cent
of all respondents thought all employees should have access to some form of
retirement savings plan at the workplace.
Clearly, there is still work to be done. C-25 sets out the framework, but
much of the details will be spelled out in the regulations. We look forward
to providing input once the draft regulations are released.
As well, to ensure that PRPPs can be effective national plans, we will
need provincial legislation as well. We were very pleased to see Quebec
introduce Bill 80 last week, which provides a framework for their version of
PRPPs. We would draw your attention to one initiative that Quebec has taken
that differs from Bill C-25. The Quebec legislation makes it mandatory for
employers with five or more full-time employees to offer some form of
workplace retirement plan. In our view, this is an important provision. We
believe that all Canadians should have access to some form of retirement
plan at their work place, where it is easiest to save. We hope other
provinces will adopt the Quebec lead.
Thank you again, Mr. Chair, for the chance to appear before the
committee. I would be pleased to provide any further input and answer any
questions you may have.
The Chair: Thank you, Mr. Swedlove.
Marion Wrobel, Vice-President, Policy and Operations, Canadian Bankers
Association: 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 54
banks operating in Canada, banks which are well managed and well capitalized
and which operate in a competitive market with a strong prudential
A strong and healthy banking system is the cornerstone of a strong
economy. It is an essential component in helping small businesses grow and
thrive and in helping Canadians buy homes and save for education and
retirement. We believe 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
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 both employers and employees as well as
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
the contributions will be locked in for retirement, an option 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. With the default
option, financial institutions also have the flexibility to tailor a mix of
investments based on the age/life-cycle of the plan members or the
characteristics of the group of employees as a whole. For those who wish to
take greater control of their investments, PRPPs will 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, administratively complex and
contain some risks that smaller employers are simply not prepared to take.
Group RRSPs go part way to addressing these challenges, but PRPPs take that
one step further.
As currently drafted, employers would have a limited set of obligations
and responsibilities under the PRPP and thus would bear few 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 over 1 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 that of keeping costs low.
First, there will be need for a regulatory regime that does not impose
costs in excess of that needed to provide the employee protection,
appropriate for the nature of the product. This is especially true for the
default investment option.
Second, there must be a sufficient number of participants so 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 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, to make the PRPP successful, provincial governments need to adopt
companion legislation to enable the PRPP to be provided to provincially
regulated businesses. The CBA has had discussions with several provinces
about the importance of having provincial frameworks in place and we have
heard some positive feedback in our discussions. There continues to be
debate in some provinces about the best way to address the retirement
savings needs of Canadians.
We believe it is important to move the PRPP file forward. PRPPs do have
the capacity to substantially increase both the number of Canadians who
participate in a pension plan and the number of employers who provide such
plans. For this reason, we will continue our outreach to provincial
governments on PRPPs and we ask committee members to bring this issue to the
attention of provincial legislators to ensure that employers and employees
in all parts of Canada have access to this savings tool.
I look forward to your questions.
The Chair: Thank you, Mr. Wrobel.
Susanna Cluff-Clyburne, Director, Parliamentary Affairs, The Canadian
Chamber of Commerce: Good afternoon and thank you for your invitation to
be here today.
The Canadian Chamber of Commerce is pleased to provide the perspectives
of our members regarding PRPPs. The Canadian Chamber of Commerce has long
supported PRPPs as an option that provides Canadian businesses with the
flexibility to choose retirement savings solutions that fit their sizes and
resources. This is particularly true for small-and medium-sized businesses,
many of which have limited or no resources to offer retirement savings
plans. At the same time, individual Canadians' retirement savings and income
needs vary significantly. We believe that PRPPs would give many individuals
who do not have a workplace pension and additional retirement savings
The following comments received from members of the Canadian Chamber's
SME Committee indicate how PRPPs could benefit smaller employers:
As an SME that does not presently have any retirement pension plan
options for its employees, but is definitely interested in an
opportunity to do so, in a manner that would be effective and efficient,
the PRPP is a great option.
PRPPs would be a great option to attract new talent to our business.
A pension plan draws a lot of the skilled people that we need to larger
corporations and this would be a nice edge to add to a great business.
With federal PRPP-enabling legislation nearing completion, we hope that
all levels of government will follow suit quickly. Doing so has the
potential to benefit the millions of Canadians who have either no, or
insufficient, retirement savings.
It is our view that once federal PRPP legislation is passed, the federal
government needs to redouble its efforts on working with the provinces to
enact their own PRPP legislation, commit to timetables for doing so, and
establish nationally harmonized regulations for PRPPs.
All governments need to ensure the introduction of PRPPs is supported by
effective communications and administrative support programs, for employers
and their employees, to maximize awareness and enrolment.
With regard to the features of PRPPs, in our submissions to the federal
government we have said that PRPPs must be designed to ensure that the cost
and burden to employers is low and that they are easy for employers to
participate in and administer. It should also be easy for employers to move
their plans between financial institutions. This will help keep costs low
and plans competitive.
PRPPs should be designed to ensure that employees have investment choices
sufficiently varied to accommodate their diverse retirement savings needs.
Harmonization of PRPPs across federal, provincial and territorial
jurisdictions is essential. Employers operating in multiple jurisdictions
should be able to offer one plan with one set of rules. Costs will be lower
if there is a harmonized framework, as administration costs will be lower
and scales will be larger. Harmonization will also facilitate competition
and ensure that all Canadians have access to multiple plans on the same
terms. Employers should not be required to offer PRPPs. Those employers who
do decide to offer a PRPP should not be required to make contributions to
them. Employers offering PRPPs should be allowed to automatically enrol
their employees to encourage participation. However, employees should be
given the option to opt out and/or in as they wish.
A maximum PRPP contribution rate should be set by law. Employers and
employees should be given the option to change their own rate of
Employees leaving their employer should be given the opportunity to
transfer their PRPP to their new employer. Employers should not have any
responsibilities related to former employees.
All entities permitted to offer PRPPs should have comparable
responsibilities and obligations. PRPPs should be offered to all employers
on similar terms, although there may need to be different terms and
conditions to accommodate individuals participating without an employer.
Disclosure of costs to employers and employees should be clear and
simple. Employers should be able to easily compare plan features and costs.
The duties and responsibilities of the employer should also be clear.
PRPPs should operate in the interests of plan members and employers and
minimize their risk. Employees should be given sufficient information so
that they can understand the plan features, the investment choices, and the
costs and benefits, in order to make informed decisions about whether to
participate and how to invest.
The Canadian Chamber of Commerce is very pleased that the federal
government has fulfilled the commitment made at the December 2010 finance
ministers' meeting to pursue a PRPP framework. We urge the other governments
to do the same.
The Chair: Thank you, Ms. Cluff-Clyburne. I will move directly to
our list of questioners.
Senator Hervieux-Payette: I will begin with Mr. Swedlove. In
French, on page 2, you refer to automatic features that provide behavioral
nudges to encourage people to start saving, with appropriate opt-out
provisions, of course. Are you talking about the possibility of opting out
of a plan when it is implemented, and not later, once a worker has begun to
contribute to the plan?
Mr. Swedlove: We think that the requirement that there be an
opting-in arrangement is important to get the volume, and we are pleased
that the government accepted that concept. We found that in the United
States, when opting in was made available, it made an enormous difference in
terms of the participation rate. Rates went from generally around 30 per
cent to 80 per cent in many cases.
At the same time, we recognize the legitimacy of people to choose their
own path if they choose to opt out of an arrangement. They will be given
that choice at the beginning, but our understanding is that they will be
given the opportunity to opt out any time during their employment with the
Senator Hervieux-Payette: So they may go to a second company, one
that does not have a plan, and leave their contributions in the first plan,
but they can no longer contribute to the plan once they are with that second
employer. But what they have already contributed will be reimbursed to them
when they retire, both their portion and that of the employer?
Mr. Swedlove: It will be up to the employee. If the employee wants
to keep his contributions in the same plan, he can do so, otherwise he may
transfer them to another plan. The choice remains with the individual. As
for the contribution made by the companies, this always remains in the plan.
Senator Hervieux-Payette: That is fine, Mr. Wrobel. We have some
concerns and we want to clarify things regarding the Bankruptcy Act. What we
felt was most worrisome in the case of Nortel was that both the federal and
provincial governments paid themselves first when the bankruptcy occurred,
and next in line were the banks.
In your case, if you are the administrator and if your business goes
bankrupt and has a pension fund, what will your priority be? Will it be to
protect the employees who contributed to the fund, or will it be to collect
to cover loans that you made to your company? In your opinion, in a
bankruptcy, should the contributions to a pension fund have precedence over
all of the other creditors?
Mr. Wrobel: I am happy to say that is a very hypothetical
question. To the point about the asset in a PRPP, they would not sit on the
balance sheet of the bank. They would be a separate account in a trust
outside of the bank, so that the failure of the bank would not affect the
assets in the PRPP.
Senator Hervieux-Payette: I am talking about the bankruptcy of the
company providing that some of the money has not been transferred already to
the fund. That is what we were worried about, that they are keeping in trust
some of the money, their contribution and the contribution of their
employees. If there is a gap, how will this money be protected in the case
of a bankruptcy of the company, the small company, not the bank?
Mr. Wrobel: I actually could not answer that question right now. I
would have to get back to you. I do not understand that kind of nuance of
the Bankruptcy and Insolvency Act. Let me take that under advisement and I
will answer the question.
Senator Hervieux-Payette: Just one word for the Chamber of
Commerce. We have a Chamber of Commerce in every province. Obviously, the
Chamber of Commerce of Canada is also in Quebec. We receive briefs in both
languages, but we did not receive yours in French. Is there a problem with
translation at the Chamber of Commerce of Canada?
Ms. Cluff-Clyburne: No, there is not. I just wrote it this
morning. I apologize. It has been a very busy week for us. We have been
appearing at a lot of committees.
Senator Tkachuk: You do not need to apologize.
Senator Hervieux-Payette: I am sorry, Senator Tkachuk. We are
dealing with a national institution to which the people of Quebec belong.
The Chair: Thank you very much. The point has been made.
Senator Maltais: Welcome once again. You are the two biggest
administrators of pension funds here, of RRSPs, of registered retirement
plans involving insurance companies, of RRSPs involving banks and also
insurance companies. You are asking that all the provinces adopt this law as
quickly as possible. I agree with you entirely. If the other provinces
follow Quebec and Saskatchewan's lead, that is to say if they manage
workers' retirement funds themselves, what would your interest be in that?
What would be left for you?
Mr. Wrobel: There are a number of private sector employers who do
not offer pension plans to their employees. We see the PRPP as a mechanism.
As Mr. Swedlove said, a lot of small employers would like to offer pension
plans to their employees but right now find it administratively complex. The
PRPP would allow them to do that.
Senator Maltais: I can point to Quebec as an example, and the
other provinces probably thought of it as well; all of the governments are
hungry for money. They issue savings bonds because they need money. Other
provincial governments may create boards, and again I would point to Quebec
as an example, as there they have the Quebec Pension Board; it could offer
to manage the RRSPs of a five-employee business tomorrow morning. But what
are you going to do in all of that? If all of the residents of Quebec, those
of Saskatchewan or the other provinces and territories create pension boards
and collect the money from small businesses of five workers or more, there
will not be much left for you to do.
Mr. Wrobel: The minister was here. He was asked that question and
he said -as long as there is a level playing field.'' We recognize there is
a desire to having competition and we are fine with that, as long as there
is a level playing field and as long as private sector administrators can
compete with those.
Senator Maltais: Quebec could, for instance, adopt a law that
would make the Quebec Pension Board responsible for this in that province.
And if I understood the minister previously, the same thing could
conceivably happen in Saskatchewan and in the other provinces, were they to
pass such a law; you know, pension funds will capitalize anybody: a bank, an
insurance company, but also a government, because they provide immediate
money that will only have to be disbursed in a given number of years. So
this allows a fund to provide capital to a government. That is how the
Quebec Pension Board was conceived in Quebec, and this led to the creation
of the Quebec Deposit and Investment Fund, and the Quebec Industrial
Development Corporation. It is a pool of money that will come back to each
of the provinces. And I wonder whether it would not in fact be in the best
interest of the governments to administer these funds themselves. I am
simply wondering about this. What do you think?
Mr. Swedlove: It is an interesting issue about the extent to which
the public sector would participate as an administrator in PRPPs. There is,
for example, the Saskatchewan plan, which operates I think significantly at
arm's length in terms of its structure and has actually been operating
somewhat with a PRPP structure today. I do not see that as particularly
I guess the issue you are getting at, senator, is that if a provincial
government chose to establish themselves as the preeminent supplier of the
PRPP service in their province. Where I would see the difficulty with that
is that, first, is there a presumption, because government is providing it,
that this is a plan that will be guaranteed in some fashion by that
government? One could say this is a defined contribution plan, because PRPPs
are, at the end of the day, a defined contribution plan. There are no
guarantees. If there is a plan that is very much connected to the government
and perceived to be connected to the government, there will be that concern
that there is an implied guarantee that exists and that if the returns are
not what was anticipated, a government may be there to support it.
I think it would be difficult for the private sector to compete with that
situation. In terms of costs, because we administer plans, they are close to
the cost of administering plans in the public sector and we can compete in
terms of costs. However, I wonder about the broad-based perception by
Canadians of what they are actually purchasing.
Senator Maltais: But for all of the governments, including the
federal government, the defined benefit pension plans will no longer exist
soon, because they require too much capital. Today, there are too many
fluctuations; the interest rates paid by the banks are too low. This makes
it difficult for anyone to have defined benefit pension plans.
Again I will point to the example of the Quebec Pension Board, and I do
not see why tomorrow morning, it could not scoop all of this up; they
already have all of the staff on board.
All of the employees in Quebec contribute to the QPP. It would not be a
stretch to add $10, $15 or $20 at the end of the month to the pooled RPP or
to one's own RRSP, since the minister said earlier that this was a
complementary system. As it is a complementary system, people can add a
small sum of $20 or $30 a month, depending on their salaries.
Let us take the case of a server in a restaurant. If it is a small snack
bar with three employees, she cannot do that; but with the Quebec Pension
Board, she can. She can because she is contributing to the QPP, and so her
employer has to provide her with a small slot for her pooled RPP.
Senator Massicotte: Thank you for being with us. As you know, this
whole thing makes a lot of sense. You have three or four principles that
everyone repeats. It is solid, professional management; low fees — we repeat
low fees; and the answer of the proposed law of the government is basically
to let competition dictate and we will get there. There have been other
examples in Canada whereby one could argue we have competition whereby the
fees are not as low as we would like as many other countries. I know the
providers are saying no, they are very good and competitive. I am talking
about the mutual fund industry, I guess. Morningstar and other experts have
said it is not low enough.
How do we ensure that this one will be low enough? I presume a key
presumption everyone is making is volume; size. These huge pension funds you
have in Canada are efficiently managed because it involves billions of
dollars. However, I suspect that when this thing comes out, every bank, many
life companies and maybe some pension funds will be offering their services.
The employer is making a choice. He has no clue and no vested interest.
Maybe he will choose the bank he deals with or someone he feels comfortable
with or some friend. How do we ensure that we get low fees at the end?
Mr. Wrobel: A couple of things are important. You mentioned the
volume and the ability to achieve economies of scale. That is important.
Also remember that these are going to be relatively simple plans. If you
look at the mutual funds that are out there right now, we have a wide range,
from very complex mutual funds, with relatively high management expense
ratios; to ones that are much simpler and have low very low management
expense ratios. These, in general, will be defined as more plain vanilla
than the kind of thing you see now. The default option will be an important
part of this and will probably constitute a large part of the plans. These
are not going to be delivered at the retail level the way mutual funds
In the banking industry, we have a relationship, as I said, with over a
million small businesses. We anticipate the ability to lever off of that and
to be delivering PRPPs to employers with 50 employees, 100 employees or 200
employees who now do not have pension plans. Therefore it would be more on a
wholesale basis than on the retail basis. I think that is an important
driver of this. It is economies of scale and I think competition is
important, that kind of simplicity, and levering off of the kinds of
relationships financial institutions have today.
Senator Massicotte: Competition is critical; I agree.
Mr. Swedlove: I will add to Mr. Wrobel's comments that we know we
can operate these at low cost because we already do in the wholesale space
of providing pension plans. As was reported in the government study that was
led by Jack Mintz, we operate larger plans at 60 basis points and 70 basis
points. Comparing it to the MERs of mutual funds is not something that we
quite fully understand if this is structured appropriately, which we think
it will be.
Senator Massicotte: Sixty is very good, but you realize the
employer makes that choice. He has very limited vested interest. He does not
gain or lose, so he may choose something that is 80 basis points or 100
basis points and I suspect the banks have an existing relationship. You
certainly have a huge advantage compared to those significant pension plans
today. How do we make sure that volume gets there and in five years from now
we could have someone managing $20 million, $30 million or $100 million?
Mr. Wrobel: As I said in the opening remarks, it has to be
appealing to the small business, to the employer. It has to be appealing to
the employee as well. Individuals have a wide range of options for savings.
They can put money in RRSPs, happily build it and put money into PRPPs. They
can save outside of that framework. They can invest in their homes. They
have all kinds of other calls on their money. Within that context, this has
to be an appealing choice to them and I think they will take into account
rate of return and cost.
Senator Massicotte: Given your experience, what do you think the
level of fees will be from your own past experience?
Mr. Wrobel: I have no past experience. I am not a banker. I work
for a trade association so I could not say on that basis. I think what Mr.
Swedlove was suggesting, from a wholesale level, was that financial
institutions would be able to deliver this product very competitively with
government agencies, something like the Canada Pension Plan.
Senator Harb: If I am to sum up what I heard from all three of you
— and correct me if I am wrong — you want the program to be low cost, with
few obligations, so it can be accessible, but also you stress the importance
of the fact that you want to have streamlined supervisory requirement. Am I
correct in saying that? Do all three of you agree on that?
Mr. Wrobel: Yes.
Mr. Swedlove: I would make the comment that I think it is
appropriate that we have appropriate regulation to protect the investor, and
I think we can rely a great deal on the existing pension plan regulatory
structure. There is something called the CAP guidelines, which ensure that
investors are protected. We think the PRPP should follow along the CAP
Ms. Cluff-Clyburne: From an employer perspective, we would
certainly advocate that the administrators be very well and rigidly
regulated. We were speaking from an employer perspective that it really
should not be the employer's job to oversee the plan.
Mr. Wrobel: On that point, to make it appealing to the small
business the obligation on the employer should be minimal. It should be
borne by the administrator.
Senator Harb: That takes me to my second question. You are all
very experienced in the field. I do not know whether I am in dreamland here
or what. Given the fact that we have the public pension fund being
administered by semi-government type agencies, is it conceivable for the
banks and the insurance companies to set up in conjunction with the Chamber
of Commerce? Is that some sort of alliance, like a Star Alliance, oneworld
or the like, where you have people on the board and if you sell more then
you make more and you administrate jointly, what we call the private sector
end of the fund that is jointly administered by you people? Is that
Mr. Swedlove: From a Competition Act perspective I am not quite
sure it is, to be honest. The second aspect I would note is that, again
going back to the study that was done by Jack Mintz, there is a point where
you get the full advantages of economies of scale. If we have a national
PRPP structure, we think that amongst the banks, the insurance companies and
other providers, that those plans will get to reasonable economies of scale
so you will get the cheapest prices possible. I would say that in having one
group that would be providing it you may be moving into the world of
diseconomies of scale to do that.
Senator Harb: Does Mr. Wrobel have something to add?
Mr. Wrobel: I do not think we feel we have to replicate something
of the size of the CPPIB.
Senator Harb: Obviously it will become law. This committee has
recommended it and the government seems to be moving in the right direction.
Ms. Cluff-Clyburne raised an important point in terms of the obligation on
the employers. Have you started thinking about a template that you would
make available, for example, to all of the employers you have on your
registries when an employer has two or three employees? It is cumbersome for
the employer to set up the paperwork. There is a cost implication involved.
If I am an employer of three or four employees, frankly I am not in the mood
of doing all the paperwork. Will you be willing to look at a template that
you would provide in conjunction with the Chamber of Commerce?
Ms. Cluff-Clyburne: We could sure help with that in terms of
running it by Canadian businesses.
Senator Harb: Will you talk with the Chamber of Commerce and
Ms. Cluff-Clyburne: They are members of ours, so we would be
delighted to speak with them.
Senator Harb: Can you pledge that to us here and now?
Mr. Wrobel: I would remind members of the committee that this will
be a business product that will be delivered by individual institutions in a
competitive framework. In terms of even templates it is something that, from
a competition point of view, I am not so sure that we should be doing. Our
job as an association is to work with governments to develop a legislative
framework to work with provincial governments to encourage them to put in
place a legislative framework to ensure that regulation is appropriate for
the risks associated with the product. Having done that, it should be left
up to individual institutions to compete in the marketplace, to design the
products the way they think is most appropriate, and they can sell to small
Senator Harb: Ms. Cluff-Clyburne is complaining about the fact
that if we have bits and pieces, without harmonization, without a proper
standard type of system, that many people will say, -Forget it. It is too
complicated for me.''
The Chair: Senators, that completes our questions for the day. To
our witness panel, on behalf of all of the committee members, I would like
to express our great appreciation for your appearance today.