Ontario’s pension timeline ‘ambitious,’ minister...
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Oct 08, 2014  |  Vote 0    0

Ontario’s pension timeline ‘ambitious,’ minister says

The province would prefer to see the federal government expand the Canadian Pension Plan, she said. But Ottawa has rejected that option, saying now is not the time while the economy is still recovering from the global recession

OurWindsor.Ca

Ontario’s plan for launching a mandatory workplace retirement plan by 2017 is “an ambitions, sometimes daunting challenge,” says Mitzie Hunter, the rookie Scarborough-Guildwood MPP who was handed responsibility for implementing the controversial plan.

But Ontarians can’t afford to wait, Hunter said in a dinner speech Wednesday to the Second National Summit on Pension Reform, sponsored by Canada’s Public Policy Forum.

“Pension coverage is low. Right now, two thirds of workers in Ontario don’t have a workplace-based pension plan,” Hunter said in her first public address since being named associate minister of finance.

“At the same time, people are not taking full advantage of retirement savings opportunities,” she said, noting Ontarians had $280 billion in unused contribution room in Registered Retirement Savings Plans in 2012.

“For those who manage to save, traditional investment vehicles like mutual funds often carry high management fees that can erode growth,” she said.

“On top of that, people are living longer,” Hunter said. “When you combine these factors, it’s easy to see a growing savings gap and a very uncertain financial future.”

The risk is not just to individuals but to business and the wider economy if seniors have less disposable income, she warned.

The province would prefer to see the federal government expand the Canadian Pension Plan, she said. But Ottawa has rejected that option, saying now is not the time while the economy is still recovering from the global recession.

Federal Minister of State for Finance Kevin Sorenson this week announced the final steps have been taken to allow the five insurance firms licensed to offer Pooled Registered Pension Plans, to begin signing up employers.

PRPPs, which pool savings from more than one employer, are seen as a more cost-effective way to offer retirement schemes to small- and medium-sized businesses.

But participation by employers is voluntary. Critics fear few businesses will opt in.

The plan applies only to federally-regulated companies, such as telecommunications firms, banks and airlines.

Four provinces have adopted their own version of the PRPP, British Columbia, Alberta, Saskatchewan and Quebec. The Quebec plan is mandatory.

Canada’s pension system does a better job than most of providing adequate retirement income through a combination of public pension plans and individuals’ savings, the policy forum says in a report presented to the summit.

Public pensions, such as the CPP and OAS, provide low-income Canadians with a reasonable retirement income, while personal savings vehicles like RRSPS allow high-income earners to sock away excess income.

But for many middle-income earners and the young, the future is not as bright.

Many employers have shed traditional defined-benefit pension plans as low interest rates and longer lifespans increased the risk of offering guaranteed payouts.

Yet, finding a fix to the system has taken five years, with little to show for it, said Dean Connor, president and chief executive officer of Sun Life Financial.

One of the biggest problems is a philosophical split over whether such plans should be mandatory or voluntary, Connor said in an interview ahead of his speech to the forum. Another is the fear that asking consumers to defer spending will worsen an already weak economic recovery, he said.

Hunter has a tough sell ahead of her.

To minimize the impact on business, the province has said its plan would be introduced gradually, starting with larger businesses. Contributions would be phased in over a two-year period.

The 2017 start date was chosen to coincide with a reduction in Employment Insurance premiums, she added.

The plan would cover the 3 million Ontarians not currently enrolled in a comparable workplace pension plan.

Employees would be required to pay 1.9 per cent of their annual earnings up to a maximum income of $90,000, matched by their employer.

A $90,000 earner will pay about $137 a month, while at $50,000 that drops to $79.

There are still lots of details to be worked out, including who should be exempt from the plan, how to define “comparable” plans and who should run the system.

At stake is $3.5 billion a year in payroll deductions that would be channeled into investments.

The private sector fears those funds will disappear from their coffers, as consumers shift their RRSP savings into publicly managed workplace plans.

The set up costs to create a separate publicly operated system can be enormous, said Sun Life’s Connor, noting a similar scheme in the U.K. cost the government $500 million.

Toronto Star

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