Ontario shakes the pension tree

Whispers about Ontario possibly establishing its own provincial pension plan are welcome, if for no other reason than this may finally rouse the federal government to real action aimed at averting a retirement savings crisis.

According to news reports, Ontario is contemplating the introduction of its own pension plan as a way of addressing the increasingly worrisome lack of retirement savings by its rapidly aging population. The design of this plan is not known, and neither are its implications for incomes, savings or the economy overall.

Nevertheless, the idea itself is valuable for two reasons. For one, it shows that policy-makers are facing the fact that they no longer can ignore this critical issue, even if that means upending the existing structure of the retirement-savings system in Canada.

The looming shortfall in retirement savings becomes an ever more urgent threat as the population ages. And there’s ample evidence that this is a problem that can be truly solved only by government.

Most employers no longer are in the defined-benefit pension business, and individual savings options mostly have failed to fill the void. Indeed, well-known behavioural biases will prevent most people from doing enough to save for retirement on their own. They must be compelled to do so – or, at least, pointed in the right direction. And yet, the federal government has been reluctant to expand the existing Canada Pension Plan (CPP) in a meaningful way.

The fact is that the problem is only going to grow with government inaction. The sooner people can be pushed to save more, the better shape they’ll be in when their retirement day finally rolls around.

The prospect of Ontario going it alone is not the ideal solution, as this does nothing for residents in other provinces. But, if a national approach can’t be agreed upon, then the province is right to pursue it.

Ideally, though, the threat of a new pension plan in Ontario will be enough to move the feds away from their historical resistance to ramping up the CPP and toward more robust retirement savings for all Canadians.