Social Policy in Ontario

Why our outdated pension plans need a fix now

Posted on January 26, 2016 in Social Security Policy Context

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TheStar.com – News/Queen’s Park – New details on the ORPP, a pension powerhouse with 4 million members, $6 billion in annual contributions.
Jan 26 2016.   By: Martin Regg Cohn, Provincial Politics

One year before its scheduled launch, the Ontario Retirement Pension Plan is leaving the CPP station. And leaving the other provinces behind.

After coasting on a two-track pension strategy since 2013 — an expanded CPP if possible, otherwise ORPP — Ontario is now going its own way. And there’s no turning back, at least not anytime soon, to link up with a Canada Pension Plan that remains stuck in time.

With the other provinces still bogged down in disagreement about CPP expansion — how much, how modest, how or when to ever do it — Kathleen Wynne is pressing ahead with her ambitious 2014 platform promise to go it alone, if need be, on retirement security.

The premier will announce the latest details of her long-awaited ORPP Tuesday, unveiling the architecture of the biggest new social program in a generation: 4 million working members and $6 billion in annual contributions will make the pension an economic powerhouse once it peaks.

With the deadline looming, Ontario is filling in some of the blanks — mirroring the CPP’s design in key areas and diverging in others:

– Pension indexation is being spelled out, so that the value of benefits will rise with inflation up to retirement, and thereafter.

– Survivor’s benefits will be paid out on a sliding scale, similar to the way most major pension funds do. If a worker dies before retirement, a lump sum will still be paid out based on the pension’s accumulated worth (CPP doesn’t do this).

– A new provincial office of Chief Actuary will be set up to perform fund valuations over time. Modelled on a federal counterpart, the pension overseer will be independent of the fund and file published reports with the Canada Revenue Agency every three years.

– Any future shortfalls (or surpluses) will trigger strict rules to adjust the cash flow coming in or going out. That could mean reduced indexation, or increases to the contribution rate until the fund is back in balance.

– The plan will mirror the CPP’s minimum earnings cut-off of $3,500 for low-wage workers. But the ORPP goes much further in covering pensionable earnings — up to $90,000 (roughly the salary of senior teacher), compared to a mere $54,900 for CPP (Canada’s average industrial wage, which is much lower).

– The current maximum benefit for CPP is $13,110 a year, among the lowest public pensions in the industrialized world. The new Ontario plan would effectively double that for people at the higher end of the income scale, paying such workers an additional $12,816 a year upon maturity.

– Workers with “comparable” pension plans will be exempted, with new details being released about how the government will assess them.

The plan design is being shared with the CRA in hopes that the province can tap into the existing federal pension infrastructure, avoiding costly duplication in the collection of contributions with the CPP, as with the HST. Queen’s Park is also asking the new Liberal government for special enabling legislation to allow the ORPP to cover federally regulated workers (such as banking and broadcasting), and to cover self-employed (increasingly young) workers who will make up a bigger part of the labour force.

Wynne is counting on close federal co-operation, given her strong ties not only to Liberal Prime Minister Justin Trudeau, but also Finance Minister Bill Morneau, who helped with the design of the ORPP when the premier appointed him to a provincial advisory panel two years ago.

She is also bracing for a counterattack from business interests and opposition critics determined to derail the ORPP. An increasingly hysterical drumbeat in the business press has branded the government-backed pension plan a “Ponzi” scheme, a “scam,” a “job-killing payroll tax,” or a “slush fund” for job-creation projects.

Despite the shrill anti-pension rhetoric, recent polling shows that 70 per cent of Ontarians strongly support the ORPP’s goals (according to a poll prepared for HOOPP pension fund in November by the Gandalf Group, with a margin of error of plus or minus 2.9 percentage points). Given that two-thirds of Ontarians lack a workplace pension, and CPP payouts average a skimpy $6,900 a year, broad public support for reform is hardly surprising.
While Wynne had always said an improved CPP was her first choice, negotiations have gone nowhere since 2010. The former Conservative government ruled out reforms last year.

When Morneau hosted his first meeting of finance ministers last month, CPP enhancement stalled again. Most in the room fretted that the economy is too weak (even though reforms would not be phased in for years).

Even if Ottawa and the provinces ultimately reach a compromise on reform, it could prove too little (most provinces speak of “modest” enhancements) too late (implementation would be at least a decade away). But if by some miracle Canada ever enhanced its outdated CPP contribution levels in a robust way, what then?

Folding in the ORPP wouldn’t be easy. Either way, the best way to plan for that possible redundancy, down the road, is to ensure co-operation with Ottawa now. Shared administration would make integration easier.

But there’s an alternative scenario: A reformed CPP could well follow the template of Ontario’s more targeted plan, which provides better coverage for higher income earners, without duplicating existing workplace plans.
In which case a future CPP might look a lot like today’s ORPP. All the more reason to get going on it now.

< http://www.thestar.com/news/queenspark/2016/01/26/why-our-outdated-pension-plans-need-a-fix-now-cohn.html >

Tags: economy, ideology, jurisdiction, participation, pensions, standard of living

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