NDP Leader Jack Layton says that a Conservative proposal to allow small businesses, employees and the self-employed to set up their own pension plans is a step in the wrong direction which will short-change middle-class Canadians.

The low-cost pension plans would be called Pooled Registered Pension Plans (PRPPs), and Finance Minister Jim Flaherty has written to the provincial finance ministers asking them to agree to the framework.

But Layton said the plan will only benefit investment bankers and give less to middle-class Canadians, because private-sector financial fees dwarf those for the public sector.

The finance ministers will meet in Kananaskis, Alta., next week to discuss the proposal.

The plan would be based on defined contributions, and would be run by private-sector financial institutions, such as insurance companies. They would be available to any type of employee, as well as the self-employed.

Flaherty's letter doesn't mention any plans for expanding the Canada Pension Plan.

"Why doesn't the government deal with the Canadian Pension Plan now?" Layton said in Parliament.

Responding, Prime Minister Stephen Harper said that a lot of small business owners and the provinces are interested in the plan. He also said that "now is not the time" to tinker with CPP.

While each individual company would track their own retirement funds, the money would be pooled with contributions from other companies. That would allow small- and medium-sized companies to take advantage of the "economies of scale" investment advantages of large pension funds.

Financial institutions would be able to set up large, pooled plans by next summer, so that employees not covered by company pension plans could start socking away their savings right away.

"Moving forward on PRPPs will provide Canadians with a new, low-cost accessible vehicle to meet their retirement objectives," Flaherty says in his letter.

"This will be particularly beneficial to Canadians that do not have the benefit of an employer sponsored pension plan, including the self-employed. This will allow more Canadians to access the benefits of being members of a registered pension plan thereby supporting Canadians in retirement."

Flaherty says there would need to be strong "regulatory harmonization" to increase the efficiency and effectiveness of the pensions.

Alberta has strongly opposed expanding the plan, worrying that higher pension deductions would discourage businesses from hiring more workers. Quebec's intentions, meanwhile, have not been clear.

So it appears the federal government is putting CPP reform on the back burner to move ahead with reforms led by the private sector first.

In recent years, many private companies have been abandoning "defined-benefit" pension plans for their employees. Defined-benefit plans guarantee employees a certain level of income upon retirement, but companies shoulder the financial risk.

With defined-contribution plans, both employees and employers put aside fixed contributions and the financial risk onus is shouldered by employees.

Research has shown that most Canadians are not putting away enough into their RRSPs and other individual saving plans, in part because bank management fees make the plans a high-cost way of saving.

The pooled pension plans would have lower management costs than individual plans and insure that the funds are invested in the best interest of the plan's members.

Last June, the provincial and federal governments said they would look at a three-pronged reform: financial literacy, regulatory changes to give the private sector more freedom to offer low-cost savings options, and gradually enhancing the CPP.

CTV Ottawa Bureau Chief Robert Fife said that the pension question is very important, given that a large number of Canadians are heading toward retirement age, while many people in their early 40s have no private pensions.

"This is a very crucial issue for people," said Fife, noting that the NDP will use the private-sector plan to paint the Tories as uncaring "neoconservatives."

With reports from The Canadian Press