Pension reform is the sleeper issue Kathleen Wynne hopes will rouse Ontario voters.
It doesn’t lend itself to snappy sound bites. It’s not as sexy as perennial scandalmongering.
But the premier is banking on a proposed Ontario Pension Plan (OPP), with its promise of future retirement security, to pay political dividends when her provincial budget is unveiled Thursday.
The pension plan is a bold gamble to seize the agenda — either by securing the NDP’s backing in the legislature, or winning popular support in a spring election should the opposition parties team up to defeat the budget. Wynne will pitch the OPP to voters as a lifeline in retirement — and hope that voters return the favour by giving her a new lease on life.
Ottawa formally rejected a plea from the provinces last December to update the Canada Pension Plan, which can no longer keep up with the retirement needs of middle-class Canadians. Now, Wynne is following up on threats to go it alone with a “made-in-Ontario” plan.
The challenge: How to lower the Liberals’ political exposure without increasing the financial risk of the first new public pension to be introduced since the Canada Pension Plan in the 1960s?
The government appears to have settled on a tried-and-tested template: Its “made-in-Ontario” plan will be modelled largely after the elegant simplicity and enviable rigour of the Canada Pension Plan.
The CPP is a world-class success. Its only shortcoming is that there is not enough of it to go around, because Ottawa has consistently refused to increase the amount of contributions — and thus payouts — needed to ensure a comfortable retirement for most middle-class Canadians.
Sources say the plan to be announced this week will essentially build on the success of the CPP model, by merely providing more of it, meaning:
• A fully funded plan supported by workers for their own retirements decades from now — not a pay-as-you-go model where older retirees siphon off money from young people, feeding intergenerational inequities.
• An independently managed plan, like the CPP and other public pensions, free from government meddling. That means worker pension contributions would be treated as pension premiums (not so-called taxes) held separately from government revenues. With only one-third of Ontarians entitled to workplace pensions, and many of them being rapidly phased out in the private sector, the need for a stable public pension plan is growing.
• A defined benefit plan with targeted payouts for retirees. This contrasts with the current fashion for pseudo pensions in the private sector, which are really glorified (and expensive) savings plans that take “defined contributions” from workers and offer no way of hedging the risks. True pensions also protect against longevity risk, which is the very real risk that you will outlive your savings (or that your savings will outlive you, in which case you have shortchanged yourself by hoarding more cash than you needed to see you through retirement).
Public pension plans like the CPP have a track record of beating the market with high returns, thanks in part to low fees (0.27 per cent of assets, compared to 2 per cent to fees for a typical RRSP).
• To achieve the economies of scale that allow for low fees and profitable long-term investments, the most successful public pension plans require mandatory enrolment. That’s how the CPP works, and its how Ontario’s world-beating public plans operate for teachers, hospital employees and others. The Liberals were initially tempted to let people opt out of their OPP design, offering a political safety valve for skeptical voters. But they appear to have recognized that an optional plan would be self-defeating, undermining the benefits of pooling funds provincewide.
Low-income workers, however, would pay proportionately lower benefits or be exempted entirely (as with the CPP, leaving them reliant as now on GIS and OAS payments). The point is to protect middle-income workers for whom the CPP’s parameters are simply out of date. Ever since the 1960s, the CPP has been limited to 25 per cent of the average industrial wage (about $50,000), so that payouts are now capped at a mere $12,500 a year.
The virtues of sticking to a CPP design are not just its past success but its present-day popularity and simplicity. The Tories will persist in calling this a tax grab, or accuse the government of picking people’s pockets, when it is anything but (pension premiums are personal savings that go straight into protected investments). By casting an OPP as a CPP clone, the Liberals will make it easier to defend their plan by building on a national brand almost as revered as medicare. Replicating the CPP model also leaves open the possibility that federal and provincial governments could follow Ontario’s lead in future, especially if there is a change in government in Ottawa.
• For all its policy heft, the political challenges cannot be underestimated. The federal government has played a dirty game on pensions for the past few years, culminating in its duplicitous scaremongering at a federal-provincial meeting last December. That’s when Ottawa’s junior finance minister, Kevin Sorenson, made the bizarre claim that any increase to CPP premiums would “kill” up to 70,000 jobs based on an internal departmental study.
Thanks to a freedom of information request filed by Canadian Press, we now know that Sorenson skewed the numbers by pretending premiums would be imposed all at once — economic shock treatment — rather than phased in over several years (as the provinces proposed, and as Ottawa did from 1997-2003). Sorenson withheld the study’s conclusions that past experience shows “the impact would be outweighed by the underlying strength of the economy.” And that “in the long run, expanding the CPP would bring economic benefits.”
Will the provincial Tories try to mimic the hardball tactics of their federal cousins to mislead Ontarians?
How will Ontario’s New Democrats respond to an OPP that is backed by the union movement and aligns with a long- forgotten pension proposal made by party leader Andrea Horwath in 2010?
Stay tuned for the budget launch of a pension plan that the opposition may denounce as a job killer but could help us all with our life savings. And may yet save the political skins of Ontario’s Liberals.
Sometimes, good policy is also good politics.