This is Canadian corruption from the Harperites. The CPP got an 11% return last year, the TSX lost 9%. PRPPs are a scam by the Harperites to pay off friends and insiders in the insurance industry. Their costs will be higher and their returns lower, but Harper's buddies will get fat fees. Time to end this.
Choose pensions over Pooled Registered Pension Plans | Personal Finance | Financial Post
Choose pensions over Pooled Registered Pension Plans
Jason Heath Apr 10, 2012 – 5:42 AM ET | Last Updated: Apr 10, 2012 6:16 PM ET
Fotolia
Pooled Registered Pension Plans, as currently planned, may not offer Canadians the same kind of protection as the Canada Pension Plan, and Canadians might be better off if the CPP were expanded instead.
Ontario sent a clear message to Ottawa in the provincial budget last week, raising several concerns about the current Pooled Registered Pension Plan (PRPP) proposal that was tabled at the federal level in 2011. Of particular note was the comment that it “is unclear if PRPP’s fiduciary framework adequately protects plan members.”
For those of you who don’t know what a fiduciary is, it comes from the Latin word fiducia and describes an ethical relationship between two parties where one party is in a vulnerable position (like a consumer) and another in a position of confidence (like a financial advisor). A fiduciary is expected to act in the best interest of the party who has trusted them.
The intention of this article is not to debate the true nature of Canadian financial advisors’ fiduciary responsibility, success or lack thereof. But suffice to say it speaks volumes when Parliament suggests that the PRPP model, to be overseen by the broader financial industry, may not “adequately protect” Canadians.
What would be the nature of the PRPP program if put into effect? Who would be the major winners from a financial perspective?
Insurance companies would likely be the main beneficiary of PRPP assets, as they already have a foothold in many small and mid-sized company benefit and group RRSP programs.
The mutual fund industry would also be a main beneficiary. New accounts with small, regular contributions are best suited to a mutual fund model, whereby set dollar amounts can be invested on a regular basis into diversified investments.
Consumers would not be a beneficiary. We already have RRSPs, DC pensions, TFSAs, non-registered accounts and – dare I say – debt repayment as our investment options. Why add another choice and the administrative and other costs that would be associated?
Insurance companies and mutual funds have a place, so this is not an attack on them. There are good insurance companies, good insurance agents, good mutual fund companies and good mutual funds. But it’s hard to imagine they’re the right solution to the country’s retirement problems.
If only the government could find a way to direct funds to an option that has existing infrastructure. RRSPs and debt repayment would be my first choices, with TFSAs to replace RRSPs for certain low-income individuals.
Low interest rates are a disincentive from paying down debt these days, and based on comments by Bank of Canada Deputy Governor Jean Boivin this week, the “aging [population] is projected to continue to subtract from potential output growth until the end of the current decade” and keep inflation and therefore interest rates at a low level.
So what is the alternative to PRPPs or another mainstream investment solution? Well, the government isn’t too far off with the Pooled Retirement Pension Plan. The Canada Pension Plan is ready, willing and able to fill the gap.
Administration costs are low, because the government is already collecting CPP contributions, investing them accordingly and making payments out to retirees.
Marketing costs are low, because the CPP doesn’t need to advertise on billboards, radio stations or golf balls. Unlike the massive dollars spent by investment companies to win our retirement dollars, the CPP is a monopoly and that keeps costs low.
What about the main thing investors are looking for – returns? The Canada Pension Plan returned 11.9% in 2011, net of fees. What did the largest mutual fund in Canada return? Would you believe it lost 2.6%? Or that some people may have paid fees that reduced that return even further? In defence of equity mutual funds in 2011, the TSX did lose 8.7% in 2011, the S&P 500 returned only 2.8% in Canadian dollars and the MSCI World lost 3.6% in Canadian dollars (investment costs would reduce those returns even further). But that just serves to reinforce how remarkable the 11.9% return by the CPP was in retrospect.
How did the CPP do it? Was it stock picking? No. In fact, they employ a combination of passive and active investment selection, so the stock selection component of the returns is limited. Diversification? Yes, but some of that diversification is into assets that the average Canadian retail investor has trouble accessing, regardless of the critics who are sure to say otherwise. The fact is, Ma and Pa Canada don’t have exposure to the private equities, private debt, infrastructure or commercial real estate the CPP is able to add to your portfolio.
Was the CPP performance an anomaly? The Ontario Teachers’ Pension Plan, which is comparable in size to the CPP and the largest single-profession pension plan in Canada, lagged the CPP slightly, returning a mere 11.2% for 2011. My guess is that these dual 11%+ returns are better than most investors did last year.
Low costs, high returns and no conflicts of interest. CPP expansion is something the average Canadian should get behind.
Choose pensions over Pooled Registered Pension Plans | Personal Finance | Financial Post
Choose pensions over Pooled Registered Pension Plans
Jason Heath Apr 10, 2012 – 5:42 AM ET | Last Updated: Apr 10, 2012 6:16 PM ET
Pooled Registered Pension Plans, as currently planned, may not offer Canadians the same kind of protection as the Canada Pension Plan, and Canadians might be better off if the CPP were expanded instead.
Ontario sent a clear message to Ottawa in the provincial budget last week, raising several concerns about the current Pooled Registered Pension Plan (PRPP) proposal that was tabled at the federal level in 2011. Of particular note was the comment that it “is unclear if PRPP’s fiduciary framework adequately protects plan members.”
For those of you who don’t know what a fiduciary is, it comes from the Latin word fiducia and describes an ethical relationship between two parties where one party is in a vulnerable position (like a consumer) and another in a position of confidence (like a financial advisor). A fiduciary is expected to act in the best interest of the party who has trusted them.
The intention of this article is not to debate the true nature of Canadian financial advisors’ fiduciary responsibility, success or lack thereof. But suffice to say it speaks volumes when Parliament suggests that the PRPP model, to be overseen by the broader financial industry, may not “adequately protect” Canadians.
What would be the nature of the PRPP program if put into effect? Who would be the major winners from a financial perspective?
Insurance companies would likely be the main beneficiary of PRPP assets, as they already have a foothold in many small and mid-sized company benefit and group RRSP programs.
The mutual fund industry would also be a main beneficiary. New accounts with small, regular contributions are best suited to a mutual fund model, whereby set dollar amounts can be invested on a regular basis into diversified investments.
Consumers would not be a beneficiary. We already have RRSPs, DC pensions, TFSAs, non-registered accounts and – dare I say – debt repayment as our investment options. Why add another choice and the administrative and other costs that would be associated?
Insurance companies and mutual funds have a place, so this is not an attack on them. There are good insurance companies, good insurance agents, good mutual fund companies and good mutual funds. But it’s hard to imagine they’re the right solution to the country’s retirement problems.
If only the government could find a way to direct funds to an option that has existing infrastructure. RRSPs and debt repayment would be my first choices, with TFSAs to replace RRSPs for certain low-income individuals.
Low interest rates are a disincentive from paying down debt these days, and based on comments by Bank of Canada Deputy Governor Jean Boivin this week, the “aging [population] is projected to continue to subtract from potential output growth until the end of the current decade” and keep inflation and therefore interest rates at a low level.
So what is the alternative to PRPPs or another mainstream investment solution? Well, the government isn’t too far off with the Pooled Retirement Pension Plan. The Canada Pension Plan is ready, willing and able to fill the gap.
Administration costs are low, because the government is already collecting CPP contributions, investing them accordingly and making payments out to retirees.
Marketing costs are low, because the CPP doesn’t need to advertise on billboards, radio stations or golf balls. Unlike the massive dollars spent by investment companies to win our retirement dollars, the CPP is a monopoly and that keeps costs low.
What about the main thing investors are looking for – returns? The Canada Pension Plan returned 11.9% in 2011, net of fees. What did the largest mutual fund in Canada return? Would you believe it lost 2.6%? Or that some people may have paid fees that reduced that return even further? In defence of equity mutual funds in 2011, the TSX did lose 8.7% in 2011, the S&P 500 returned only 2.8% in Canadian dollars and the MSCI World lost 3.6% in Canadian dollars (investment costs would reduce those returns even further). But that just serves to reinforce how remarkable the 11.9% return by the CPP was in retrospect.
How did the CPP do it? Was it stock picking? No. In fact, they employ a combination of passive and active investment selection, so the stock selection component of the returns is limited. Diversification? Yes, but some of that diversification is into assets that the average Canadian retail investor has trouble accessing, regardless of the critics who are sure to say otherwise. The fact is, Ma and Pa Canada don’t have exposure to the private equities, private debt, infrastructure or commercial real estate the CPP is able to add to your portfolio.
Was the CPP performance an anomaly? The Ontario Teachers’ Pension Plan, which is comparable in size to the CPP and the largest single-profession pension plan in Canada, lagged the CPP slightly, returning a mere 11.2% for 2011. My guess is that these dual 11%+ returns are better than most investors did last year.
Low costs, high returns and no conflicts of interest. CPP expansion is something the average Canadian should get behind.