If elected, the Liberals promise to work on a new, voluntary supplement to the Canada Pension Plan that they call the Secure Retirement Option (SRO). Here’s how it would work: Canadians can voluntarily contribute an additional 5 to 10 percent of their paycheck into a retirement fund backed by the CPP. A contribution to the SRO will result in an equal reduction in the RRSP contribution room. It is not entirely clear but the wording in the document seems to suggest that the SRO will be a definited contribution plan and hence not a true pension. Since any changes to the CPP will require the assent of the provinces, the Liberals only promise to “pursue this innovative approach”.

The Secure Retirement Option is a new public option, within the CPP, that would change the outlook for those Canadians who currently do not have a pension plan. It would allow them to avoid the risk, complexity and hidden management fees of RRSPs. A two-person household, with earnings that start at $35,000 per year, and rise to $65,000 per year over time would need to have annual pension of $14,000 on top of the existing Canada Pension Plan and Old Age Security to secure a pension worth 60 percent of their household income at retirement. A voluntary six percent contribution rate from gross pay over the working years to an SRO account would put the household on track to achieve that goal. Participating workers who contribute more, or those whose employers provide additional contributions, would receive an even more generous pension.

The SRO is the same supplementary CPP option that received much media attention in the run up to the pension reform roundtable last year. But it doesn’t appear all that different in substance from the Pooled Registered Pension Plans that the Government announced it is working on last December.

The Platform also says that the party will support “a gradual increase of the defined benefits under the core CPP” but details are conspicuous by their absence. How much of an increase are the Liberals talking about? By how much will CPP contributions by both employers and employees increase? Of course, we can’t expect too much from an election platform. Mentioning benefits while omitting any discussion of costs is par for the course for a political document.

This article has 14 comments

  1. “Hidden management fees with RRSPs”? Seeing as those have to be disclosed, it seems like the government is in a good spot to make these fees more transparent. How does the return of RRSPs (with their hidden management fees) compare with the return one would get investing an equal amount in CPP?


  2. Pingback: Liberal Proposals on the Canada Pension Plan « MoneySense

  3. There’s no vagueness; it’s a defined contribution pension plan. See the 5th question down and the answer on this link:


  4. Another really dumb idea, especially if it takes away from your RRSP contribution room. If the concern is that most Canadians aren’t taking advantage of RRSPs to save for retirement, I think even fewer would opt for an SRO that they can’t understand.

    The difference? It would take hundreds if not thousands of additional highly paid (with fat pensions) civil servants to try to administer this new program for zero net benefit. This is yet another reason why our Government is much too bloated and wasting too much of our taxpayer dollars.

    I only wish that one political party would step up and say that they’re going to reduce bureaucracy by simplifying everything in government and give Canadians the benefits through personal income tax cuts. But alas, Canadians oddly seem to think that Government knows best and that they know how to better spend our money than we do – on single source no-bid contracts for fighter jets, or on used British submarines that can’t submerge or by ordering and canceling helicopter contracts at the expense of hundreds of millions of dollars each time it’s done, or on sponsorship programs, or on campaign advertisements or put up big signs all across the country that read “Economic Action Plan”.

    Aargh! Election season drives me crazy!

  5. It seems like the difference between the SRO and Pooled Plans are who administers it, the CPP or private companies.

    @CC: Next article topic: What does the CPP do with all that money?

  6. I’ve read the full proposal on the Liberals’ site, but it doesn’t make any sense to me. Isn’t the CPP a defined benefit plan? How can this proposal be “built on the low-cost CPP” in any meaningful or realistic sense if this proposal is a defined contribution plan?

    I wish the parties would start coming up with realistic promises that indicate some understanding of the real world, not wishful thinking.

  7. @Viscount: the Libs defined the problem (of inadequate retirement savings) as high fees and complexity. They are proposing that the CPPIB manage the funds – providing low cost and a known entity (thus reducing complexity). Hence “built on the CPP” – but this is NOT an increase of or extension to the CPP.

    For my own part, I doubt this solution will increase retirement savings by Canadians – but if I could put some of my savings into a fund managed by the CPPIB, I probably would.

  8. This seems to be a government run version of what one would get with a financial adviser. I don’t think the idea in itself is terrible, but I have to question if they’re solving the right problem.

    Why aren’t people saving enough for retirement (assuming this is a true statement, which I think it is)? Is it because the management fees are too high? If management fees were to all of a sudden become free, would people start investing?

    The underlying assumption with this proposal is that people have the cash to invest, but they aren’t doing so because of some factors such as excessive fees or just general friction around getting the money to their adviser. I don’t think that’s a correct statement, though, which is why I don’t think the plan is a great idea.

  9. @Alexandra: Thanks for that link. Since the SRO doesn’t seem to have a default opt-in option, I share your doubts whether this will address the problem of inadequate savings.

    @Phil: As long as SRO remains voluntary, I don’t have a problem with it because I’m not going to sign up. Our RRSPs are already in low-cost, simple products and I don’t see why I should sign up for a CPPIB managed account.

    @Sid: Good point on the difference between the SRO and PRPP. We will only know how much PRPPs cost when they are implemented. It is possible to have low-fee Pooled accounts with private providers. My employer offers a Group RRSP with fees in the 0.8% range. That’s not rock-bottom cheap but it loads better than the typical mutual fund found in RRSPs.

    @Viscount: The platform doesn’t do a good job of explaining the SRO. Check out this link provided by Alexandra. It has more details:

    @Sean: I agree with your characterization that this is essentially a Government-run Group RRSP. Canadians seem to have a savings problem but if the SRO is entirely voluntary, I don’t see how it can be successful. We already have RRSP accounts and take up is quite poor. I don’t think the reason for the poor take-up is fees either. After all, most Canadians are blissfully unaware of how much fees are costing them!

  10. @CC. But who is going to administer the tens or hundreds of thousands of Canadians who do happen to sign up for the program? Civil servants. Who is going to pay for the salaries of these hundreds of civil servants who will be hired to manage this new “optional” program? Our taxes.

  11. It is interesting that the “complexity” of RRSPs seems to be a concern as per the quotation. From the comments already posted, it seems the new SRO would be comparably confusing and just as complex.
    I work at a bank and have been employed as a tax preparer in the past. The most common reason I hear for not contributing to RRSPs is just not enough money. A LOT of Canadians are living cheque to cheque. They can barely meet their living expenses and debt obligations, let alone savings. How many families have an emergency fund? How about a TFSA?
    Afterthought, would these SRO contributions be tax deductable like RRSP contributions?

  12. @Phil: If the extra money is managed by private companies, will it be administered by fairies who only require you to clap your hands for them to survive? If it’s administered by a private company they too will have to pay people to manage the money paid for by the tax payer. The only real difference between the two in term of cost is that a private company will have to make a profit.

  13. @Sid, I think the argument against the government doing it is that they are not well known for their efficiency. A private company has an incentive to do it both well and efficiently.

  14. @Sean: Having worked for the government in the past I can agree with that arguement in some circumstances and would have to disagree in others. I guess the next question is just how well does the CPP manage that money?