Pension Reform 2012: CPP and PRPP

Having escaped -40∞-Celsius temperatures in Calgary yesterday on the Knowledge Bureau's nationwide T1 Tax Update Workshop Tour, today's beautiful sunrise over Vancouver reminds me why this lovely province is a retirement haven. Yet, for many, retirement has become more costly and saving for retirement has become more difficult.

That makes the pension reforms being introduced in Canada in 2012 doubly significant. In addition to the multitude of changes to the Canada Pension Plan introduced this month (see "Masteryî below), Canadians can look forward to the passage of federal and provincial legislation that will bring life to a new pension savings opportunity ó the Pooled Retirement Pension Plan (PRPP).

The PRPP will fill a gap for the self-employed as well as employees whose employers do not provide an employer-sponsored pension. And the latter is a growing number of people. From 1991 to 2007, the proportion of working Canadians who have access to employer-sponsored plans has declined to 34% from 41%, leaving a gap in discretionary retirement savings opportunities for two-thirds of Canadians. The PRPP will help to close that gap.

The PRPP also provides an attractive option for small-business owners who found participation in existing Registered Pension Plans ó defined benefit or defined contribution ó too expensive. They and their employees will have access to a large-scale, professionally administrated and lower-cost pension plan, which gives them an opportunity to split retirement income with the spouse sooner than under current RRSP rules.

According to background information provided by the federal Department of Finance, Canada's retirement pension system is already a world model recognized by the Organization for Economic Co-operation and Development for its success in reducing poverty and providing high levels of income replacement for retirees. These new pension reforms should help make retirement even better for disciplined savers in the "gapî categories.

It's your money, your life. This tax season, be sure to ask your tax and financial advisors about these retirement savings and income-replacement changes and what they mean to you and your family in 2012 and beyond.

Evelyn Jacks is President of Knowledge Bureau, which offers a certificate self study course on Tax Efficient Retirement Income Planning. She is also the author of Essential Tax Facts 2012 and co-author of Financial Recovery in a Fragile World.