The National Post today reports the Ontario Government has revealed more detail today about its oft-criticized Ontario Retirement Pension Plan or ORPP. As it reported in a later update, staff at the province’s bigger employers will have to start paying into the plan by 2017, with a full rollout by 2020.
Employers will be exempt only if they already offer a mandatory Registered Pension Plan that Ontario deems comparable to the ORPP.
In 2022, Ontario residents who are 65 or older can start drawing benefits from the ORPP. Full-time or part-time workers can start contributing at 18 and continue until they turn 70.
While Premier Wynne has not released cost estimates of the program, the Post reported the plan will collect 1.9% of a workers’ income up to $90,000 from both employers and employees to a total of 3.8%, or a combined total of $3,420 a year
Meanwhile, proponents and critics of the plan got a little more ammunition from two different retirement reports produced by the Fraser Institute and the Mowat Centre.
Released Tuesday, the Fraser Institute report is titled Lessons for Ontario and Canada from Forced Retirement Savings Mandates in Australia. It suggests that if Canada really needs more “forced” retirement savings, Ontario should look for global examples that could be alternatives to its current plans for the ORPP. For example, it should look at Australia’s “superannuation” program, a contribution-based scheme to which both employers and employees must contribute. Australia’s system of “individual accounts” provide more flexibility and choice than, for example, the Canada Pension Plan (CPP.)
Like the CPP, the ORPP is a “collective” pension plan that pay out defined benefits over a lifetime. The paper by the Mowat Centre (titled Lower Risk, Higher Reward: Renewing Canada’s Retirement Income System) says the Australian plan has had “mixed” success because as a Defined Contribution plan it doesn’t guarantee a set income for life, as does the CPP and DB pensions in general.
Middle-to-upper income earners may need more help
Citing input from the Research on Public Policy, the Mowat report says singles and those earning middle-to-upper income are most in need of extra retirement income. Lower-income earners are better able to “replace” their working income in retirement but middle-income earners with no employer-provided pensions or inadequate ones, or who lack a partner to share expenses, will not be as well off in retirement. For this group, the Mowat report agues for “a more concerted effort toward mandatory saving.”
But it also points out what the Fred Vettese (of Morneau Shepell) argued in an August 5th column in the Post: that it might not be necessary to create an entire new bureaucracy. Something as simple as doubling the yearly maximum earnings covered by the CPP (from, for example, $45,000 to $90,000) would go a long way to improving the retirement income of middle-income earners. Vettese’s piece was titled CPP Should Be Expanded, But Not in the Way Everyone’s Talking About. I agree with his conclusion: why reinvent the wheel either in Ontario or by complex CPP expansion programs, when all you need to do is help higher-income earners contribute more? Those who make less won’t have to contribute as much.
The Post piece closes by noting the ideological rift between Ontario premier Kathleen Wynne and Canadian prime minister Stephen Harper. The latter prefers private savings models like the TFSA and Pooled Registered Pension Plans that put the onus on the individual to fund their future retirements. Just before the election was called, Ottawa said it would not help Ontario collect payroll deductions for the ORPP.