With a comfortable majority, but unsure about what the future holds in Ottawa, Ontario’s Liberals are pressing ahead with their goal of a provincial pension plan within two years.
Finance Minister Charles Sousa’s fiscal update Monday put a bit more meat on the bones of the Ontario Retirement Pension Plan (ORPP), a mandatory payroll deduction for the three million Ontarians without a company pension. Background papers accompanying the update promise legislation soon — though there’s no hard date — and firmed up what we can expect to pay and what we’ll get.
Still to be explained is the cost of setting this up and which Ontario workers must opt in. When it comes to who’s in and who’s out, it all depends on how the province defines “a comparable pension plan.” Those talks are underway and will continue. Scarborough-Guildwood MPP Mitzie Hunter, appointed associate finance in charge of the ORPP, has met with some industry groups, including chambers of commerce; the Canadian Manufacturers and Exporters, the country’s largest trade association; and the Canadian Federation of Independent Business.
Hunter’s office said this week that discussions continue with labour and community groups, “to ensure that a broad range of perspectives are heard.”
Another unknown is what this all going to cost. The cheapest and smartest solution is striking a deal with the federal Conservatives to fold Ontario’s ambitions into the Canada Pension Plan. But so far, Ottawa wants nothing to do with it. Ideologically, they prefer voluntary plans like Registered Retirement Savings Plans (RRSPs) and Tax Free Savings Accounts (TFSAs) — even though there’s plenty of evidence that voluntary plans don’t work. Most people can’t or won’t save.
Kevin Sorenson, minister of state for finance responsible for the CPP, has called the Ontario plan a reckless high-tax spending initiative. He says Ontario should get onside with voluntary plans including the Pooled Registered Pension Plans (PRPPs ) introduced in 2011.
A PRPP is also designed to provide retirement income for those without a workplace pension. Here, individuals buy into a pool of funds that pay a monthly amount at retirement. A spokesman for Sorensen said this week nothing had changed. No support will be forthcoming from Ottawa, even though Sousa’s update promises to introduce PRPP legislation.
But Ontario may be getting the last laugh. The pension will be rolled out in 2017 and may appear less expensive than it actually is, because employment insurance (EI) premiums are due to fall at the same time. This puts more money in our pockets and the illusion that the new pension costs less than it does. For the Tories, the political gain of a tax cut disappears to aid a Liberal pension initiative they don’t like.
Here’s what we learned from Sousa’s fiscal update:
• Legislation to allow the province to start building the ORPP structure is coming soon. That includes a framework that sets out the investment philosophy, the plan’s structure, duties and oversight of an investment board, and ways to collect the money.
• The man at the centre of this task is confirmed as Michael Nobrega, former head of OMERS, the municipal employees pension plan. Sousa says Nobrega’s role is “providing guidance and support” to him and Hunter. This includes “advice on the creation of the arm’s-length administrative entity and the development of the administrative and operational capacity necessary” to run the plan.
• The annual contribution limit and future payments will increase with inflation.
The ORPP aims to replace up to 15 per cent of earnings, to a maximum annual income of $90,000. For example, a $60,000-a-year earner, having made the maximum contribution, would receive $9,000 a year, or $750 a month, if the plan was in effect today. This assumes that recipient had paid into the plan for about 40 years.
The ORPP’s real benefit is for young people and those about to enter the workforce. When combined with CPP, they’ll have a meaningful base for retirement, to combine with personal savings.
• Employees and employers will each contribute 1.9 per cent of earnings to the $90,000 maximum. For example, at $60,000, both worker and employer pay $95 a month into the plan. ($60,000 x 1.9 per cent, divided by 12).
As always, the devil is in the details, and many of those are still missing. Five months have passed since the election and it’s time for some meaningful information about the costs and shape of this bold and important plan.
It’s our money, and we deserve no less.