The chorus of opposition to the Ontario Retirement Pension Plan (ORPP) was heard loud and clear at the Canadian Institute of Financial Planners’ annual conference in Vancouver on Friday.
Niels Veldhuis, president of the Fraser Institute in Vancouver, and Jamie Golombek, managing director of tax and estate planning with Canadian Imperial Bank of Commerce’s wealth advisory services division in Toronto, both had harsh words for the Ontario government’s initiative.
The discussion around the ORPP is ignoring an important argument concerning the true amount that Ontarians will be able to save, Veldhuis said. People would not necessarily save more when the ORPP is created, but would substitute one savings vehicle for another.
“If you force people to save a dollar, the economic research tells you you’re going to get 100% offset in private savings,” Veldhuis explained. “So, [if] you’re going to force Ontarians to save $7,000 in the Ontario pension plan, they’re going to save $7,000 less in their tax-free savings accounts and [RRSPs].”
The plan, which is to be in effect in 2017, would require employers and employees to contribute a maximum of 1.9% each of an employee’s annual earnings up to $90,000.
Advocates of the ORPP tend to tout the cost effectiveness of a public plan by referring to the lower costs of investing in the Canada Pension Plan (CPP) as opposed to mutual funds and other investment products. Veldhuis takes issue with this argument.
“When people say that [investing in CPP costs less], they only look at a small portion of the costs of operating the CPP Investment Board,” he said. “They only look at the direct operating costs. They don’t look at external management fees.”
Golombek was blunt in his assessment of the ORPP: “This makes no sense at all.”
He called the mandatory ORPP a complicated idea, especially for individuals who move across provinces or for employers located in multiple provinces.
However, Veldhuis and Golombek differed slightly in their views on another initiative to boost retirement income: the federal government’s recent announcement that it is considering allowing Canadians to increase their contributions to the CPP voluntarily.
Veldhuis noted that what starts as a voluntary program could easily be switched to one that is mandatory.
Golombek took the view that the current discussion surrounding the expansion of CPP is one that the financial planners can use to open up the retirement planning conversation with their clients.
“As long as [the additional contributions are] voluntary, give people the option and then prove we can add more value,” he said.
Talk to clients about the CPP, its costs, where it invests funds and how certified financial planners can help in planning for retirement, Golombek suggested.