Time to jump into the pension plan pool

The federal government likes the idea of all small and medium businesses offering their employees a pension plan. They could pool the funds with many other businesses into a big, well-managed, low-cost general fund, allowing more people a more secure retirement.

The C.D. Howe Institute says the feds like the idea because they crunched the numbers — and the numbers seem to favour the federal government.

Nationally, almost half of workers aged 55-64 are reported to have never saved anything at all for their retirement. No company plan, no RSP, no TFSA, nothing.

If that's really the case, then millions of workers will be coming out of the full-time workforce over the next 20 years, with only their Canada Pension, plus the Old Age Security benefit and the Guaranteed Income Supplement to live on. That's a pretty modest income base for individuals, but a big total expense for government.

The C.D. Howe people say if more workers had personal savings plans, like the Pooled Retirement Pension Plan (PRPP) being suggested, they would have better incomes in retirement, but their total dollars received would be less. That's even considering the income tax rebates people get over the years for contributing.

How so? The clawbacks on supplement benefits for seniors come at a higher rate than the income tax refunds people get for retirement saving. The government would save more money clawing back seniors' benefits than it paid in tax incentives to savers, who won't get the benefit.

In my opinion, having more Canadians self-reliant in retirement is a better goal than carping that the government will save money by not having to bring their incomes to the lowest-possible base-survival level.

The Alberta government thinks so, too.

Last week, they introduced a plan to give Alberta businesses the option of offering their workers a PRPP as a workplace benefit. It won't do much for those Alberta workers aged 55-64, one of six of whom has no workplace pension plan now. (Call that the Howe drawback: there's not enough years left to them to see real savings growth — maybe they're better off trying to survive on OAS and GIS.)

But it would mean a lot for hundreds of thousands of younger Alberta workers. They could begin saving for retirement at a low cost to them (employers would contribute a portion of the plan as a workplace benefit), receive a tax refund on their contributions through their working lives, and see savings grow with professional fund management provided at a low individual cost.

If you ask C.D. Howe, they'd be stupid to do this. But if you asked the workers, I think they'd gladly sign on. So would their employers, who would have a low-cost incentive to attract and keep staff.

The plan is also mobile. Workers today switch jobs much more frequently than in the past. With the Alberta plan, workers can move from one employer registered with the plan to another, and keep their plan intact.

If you move from one employer in the plan, to an employer who opted not to offer it — well, that's part of the incentive for employers register.

The Canadian Federation of Independent Business, and the Chamber of Commerce both endorse Alberta becoming the third province to introduce the PRPP. Quebec has a mandatory plan, while B.C.'s plan is optional for employers. Alberta's plan would be optional as well.

From a worker's standpoint, this seems like a no-brainer. Why do so few workers save for retirement?

I'll bet declining real incomes play a big factor, along with high personal debt levels. Add the complexity of RSPs, TFSAs and other savings options — plus their obvious costs — and a whole lot of people getting by on tighter and tighter incomes just opt to forget the future.

But if your employer assisted with the cost, if you got a tax refund for your share, if the options were made simple, and if forced savings are just part of your employment agreement anyway, you'll find the percentage of people with active savings plans will rise dramatically.

The C.D. Howe Institute recommends some legal changes before they will give their approval to pooled pension plans.

• They want people to be able to remove their savings on retirement, tax-free, for low and middle-income earners. That means no taxes on the interest for this group of workers.

• They want PRPPs to offer lifetime payout plans, just like a government worker would get. That means if you live a really long time in retirement, you may get more out of the plan than you contributed, plus interest.

• They want a lifetime accumulation limit set, to level the playing field with people who have defined benefit plans. How that would work, I don't know.

• And they want people to be able to contribute extra to their plans, above what their employer offers, which is something government workers can do.

Sounds reasonable. But first you have to get the employers in the pool.

Alberta is doing the right thing with this, though the greatest benefits may not be counted for many years.