In its 2012 Budget, released March 20, the Quebec government announced the rules for Voluntary Retirement Savings Plans (VRSP), to be in place as of January 1, 2013.
All Quebec employers, with at least 5 employees with at least one year of uninterrupted service, and who do not already provide a payroll deduction retirement savings plan (like a group RRSP), will be required, as of January 1, 2015, to choose a VRSP (basically an RRSP-type retirement savings plan) offered by a financial institution for their workers. Apparently, employers with a non-contributory registered pension plan will also be required to provide a VRSP.
The employer does not have to contribute to the VRSP, but sets a contribution rate for the employee. Each employee has the option to opt out of the VRSP within 60 days of enrolment or at a later time.
The employee can select and change their own VRSP contribution rate (within the overall tax limits for pension and RRSP contributions), but if no selection is made, the default employee contribution rates will be 2% between January 1, 2013 and December 31, 2015, 3% between, January 1, 2016 and December 31, 2016, and 4% after January 1, 2017.
Like RRSPs, contributions to VRSPs are tax-deductible and accumulate tax-free until they are withdrawn.
Members can be provided with up to 6 investment options, with a “life cycle” model (investment policy changes according to the member’s age) as the default option.
Member contributions are not locked-in and can be withdrawn (and taxed) at any time. Employer contributions cannot be withdrawn before the member reaches age 55.
VRSPs and the other proposed PRPPs are being promoted as a simple and cheap solution to the growing shortfall in retirement savings. Unfortunately, they offer little that isn’t already available in the RRSP market, which has proved totally inadequate. They are supposed to offer lower investment fees than current RRSPs, but it is hard to see why the same financial institutions who are raking in huge amounts in their inflated fees, would undercut their own profits in VRSPs.
VRSPs and the whole PRPP proposal are simply an attempt by the financial services industry and its government supporters to protect their lucrative markets from the real solution to our retirement income issues – a major improvement in our public pensions – Old Age Security, the Guaranteed Income Supplement and the Quebec/Canada Pension Plan – that provide coverage and cost-efficiencies that private sector simply cannot match.