The Ontario government is forging ahead with the construction of a new provincial pension plan – the Ontario Retirement Pension Plan (ORPP) – which was promised in last year’s budget and aims to launch in 2017. Last December, the government issued a consultation paper that presents the initial design ideas for the plan and seeks feedback.
While the government is not publishing the responses it has received regarding the consultation (which closed on Feb. 13), several organizations in the financial services sector have published their submissions – which argue against the proposed ORPP.
In general, the sector insists that a new public savings program is not necessary and could be harmful, particularly for the retail investment business. For example, the Investment Industry Association of Canada‘s (IIAC) comment warns that the introduction of the proposed ORPP is likely to crowd out RRSP investment: “The result will be reduced flexibility and choice for employers and investors, and overall weakening of the Ontario financial services sector that provides wealth-management services to Ontarians. This outcome will have a negative economic impact that will be felt across all of Canada.”
NOT THE CASE FOR ALL
Many industry responses to the consultation say the premise that Canadians are not saving enough for retirement is suspect, and that a new universal public pension plan is not necessary. While some people may be inadequately preparing for retirement, that’s not the case for everyone. The IIAC’s submission, for example, says that the shortfall in retirement savings is largely confined to middle-income workers without pension coverage at their job or enough private savings.
The IIAC’s basic position is echoed in submissions from the Investment Funds Institute of Canada, the Canadian Life and Health Insurance Association Inc. (CLHIA) and the Portfolio Management Association of Canada. Instead, these industry organizations argue, targeted reforms to the existing retirement savings regime – including the rules governing RRSPs, registered retirement income funds, pooled registered pension plans (PRPPs) and tax laws generally – would be a better way to address the issue of lack of adequate savings.
Creating a whole new pension scheme is not the Ontario government’s first choice, either. The consultation paper states that the preferred option remains an expansion of the Canada Pension Plan (CPP). However, as the current federal government has refused to expand the CPP – preferring to create new, private savings vehicles, such as tax-free savings accounts and PRPPs – the Ontario government is proceeding reluctantly to build its own public plan.
Even groups that strongly favour the creation of the ORPP, such as organized labour groups, see the proposal as a second-best solution. They, too, would rather see the CPP expanded. The hope that an enhanced CPP may one day be realized – perhaps under a different federal government – informs their views on the design for Ontario’s new plan.
Proponents of the ORPP, such as the Ontario Federation of Labour (OFL), would like to see the proposed plan mimic the format of the CPP, so that the ORPP could be rolled into the federal scheme easily if an agreement to enhance the CPP is ever reached. As the OFL says in its submission: “It is crucial that the ORPP mirror the CPP in as many respects as possible.”
UNIVERSALITY IS KEY
To that end, the OFL’s submission says, the ORPP should be: universal; subject to the same minimum income threshold as the CPP (i.e., $3,500); funded by shared contributions; and its assets should be managed by an independent public board. “Mandatory universality is key to the success of expanded retirement security,” the OFL’s submission suggests.
That position is endorsed in the comments from organizations such as the Canadian Association of Retired Persons, the Canadian Centre for Policy Alternatives and the Ontario Confederation of University Faculty Associations. They agree that the ORPP should be as universal as possible, including both self-employed workers (which would require an amendment to federal income tax law) and low-income workers (subject to the $3,500 minimum).
This question of universality is one of the key design principles of the ORPP that are up for debate. The provincial government indicates in its proposal that the ORPP will exclude employees that already have a defined-benefit plan, but not employees with defined-contribution (DC) plans, group RRSPs or PRPPs.
The Pension Investment Association of Canada‘s (PIAC) submission argues that employees with DC plans should be eligible for exclusion from the new public plan, too, suggesting that requiring firms with DC plans to participate will increase administrative complexity and costs for firms that operate in multiple provinces. PIAC’s submission includes a warning that some firms may simply scrap their existing plans if participation in the ORPP is required, and other firms that can’t cancel their plans due to existing collective agreements would face “undue hardship” by being required to contribute to Ontario’s new plan as well.
The CLHIA reports that a survey it commissioned from Environics found that 78% of employers said they probably would reduce their contributions to their existing pension plan if a mandatory ORPP were introduced; 66% would consider eliminating their existing plans altogether. The CLHIA comment on the proposed ORPP also warns that such a plan would eliminate the incentive for employers to adopt PRPPs.
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