The government’s plan to introduce pooled registered pension plans is a small step in the right direction, but won’t effectively address the country’s pension coverage issues, according to Paul Forestell, senior partner at Mercer.

Speaking at Mercer’s annual pension outlook and investment forecast event in Toronto on Thursday, Forestell said that while he supports the introduction of PRPPs in Canada, he doesn’t expect the plans to resolve the country’s retirement savings shortfall.

“It’s not hard to support the pooled registered pension plan,” said Forestell, who is also Mercer’s retirement risk and finance business leader for Central Canada. “If implemented, it will be a positive step for retirement savings in Canada. But probably just a very small step.”

He explained that the PRPP would provide smaller employers with a simpler approach to retirement savings. The plans would also boast low fees and prudent default investment options, under the government’s proposal.

But as an optional program, Forestell said PRPPs won’t likely address the issue of pension coverage in Canada.

“I’m not certain that this will be enough incentive for employers who do not currently provide any retirement savings options to join a pooled RPP,” Forestell said. “Those employers that currently provide a group RRSP or DC pension plan may elect to switch to a pooled RPP. But I doubt that other employers will move quickly on this.”

Under the proposal, provincial regulators could opt to make PRPPs mandatory for employers that don’t sponsor another pension plan for employees. But Forestell said he doesn’t expect that any provincial jurisdictions would do so.

Meanwhile, proposed enhancements to the Canada Pension Plan would better address problems with pension coverage in Canada, according to Forestell. For example, he pointed to proposals to double the amount of the Year’s Maximum Pensionable Earnings.

“The coverage issue for middle income Canadians would be at least partially addressed,” he said. However, he pointed out that this approach would take 25 years to have much of an effect, if the change were made on a prospective basis, and would be unaffordable if made on a retroactive basis.

Forestell added that making any changes to the CPP would be challenging, requiring the agreement of two-thirds of the provinces with two-thirds of the population.

“With Alberta and Quebec on record as opposing changes to the CPP, it seems unlikely that changes will be proposed,” he said. “I predict that no changes will be made to the CPP in 2011, or likely in the years after that.”

IE