Note: This story was written before Premier Kathleen Wynne announced Tuesday that her government would drop the Ontario Retirement Pension Plan if the Liberals win the election.
The message of the Government of Ontario on the Ontario Retirement Pension Plan (ORPP) is loud and clear. The plan can effectively provide a predictable source of retirement income for millions of Ontarians.
Speaking at Benefits Canada’s DC Investment Forum in Toronto last week, Associate Minister of Finance Mitzie Hunter argued that the proposed plan could be a boon both as a recruitment advantage for businesses and as a security net for workers without access to DB plan or adequate DC plan coverage.
An estimated 3.5 million Ontarians are expected to benefit by the provincially managed plan intended as a supplement to the CPP for workers who don’t have workplace pensions.
However, the well-intentioned program ran into some political headwinds as the federal government refused to extend any help to set up or run the provincial plan.
Hunter, who’s the associate minister responsible for the pension plan, expressed disappointment at Prime Minister Stephen Harper’s unsupportive stance.
“Unfortunately, Stephan Harper has said he would not co-operate with Ontario on the administration of this plan,” she said, stressing that it wouldn’t have to cost the federal government a dime. “He even expressed delight in standing in the way.”
Read: QPP offers lessons for ORPP: Report
Ontario is asking the federal government of the same co-operation it extended to other provinces.
“The CRA already provides administrative services on behalf of provinces,” said Hunter. “There is already a co-operative agreement in place with the Quebec Pension Plan, and legislative changes were made to accommodate the Saskatchewan Pension Plan.”
However, Hunter added that Ottawa’s response wasn’t quite unexpected and that Ontario government is prepared to move forward regardless.
“We’ve planned with this possibility in mind and have taken steps to address it and develop an efficient administrative entity,” she said. “That work will continue.”
Like the CPP, the ORPP will be professionally run at arm’s length from the government. In other words, the fund will be invested independently. “They will not form part of government revenues, and this is enshrined in our legislation,” Hunter assured. “All contributions will be held in trust for plan members [who] will receive benefits based on their income and the number of years they have contributed to the plan.”
It is argued that two-thirds of Ontario workers today lack a workplace pension plan, which strains their personal savings to fill the gap.
“Personal savings [in today’s] post-recession global economy are simply not growing at the same rate they once were,” said Hunter. “This all adds up to an inadequate retirement savings system that is creating a fair amount of anxiety.”
She contended that if a large group of workers enters retirement living far below their previous standard of living, it will have ramifications. “Any financial uncertainty means spending less on ordinary goods and services, including things that help seniors have a healthier retirement,” said Hunter. “This potentially puts pressure on our economy, on publicly funded social assistance program and, ultimately, on the tax base.”
Hunter outlined the following ways the ORPP will help Ontarians:
- Individual advantage: The ORPP will help the individual worker achieve adequate retirement income, something the current retirement system is simply not doing. Young workers are changing jobs frequently, which prevents them from accumulating adequate an pension benefit. “Unfortunately, three in four young professionals don’t have a pension plan,” said Hunter. “Like the CPP, the ORPP would help its members save for a predictable stream of retirement income for life.”
- Societal benefit: When a large group of seniors enters retirement with income that dramatically reduces their standard of living. This has potential for a significant economic impact. “The ORPP aims to ensure future generations are supported both through a pension and through the economy,” she said.
- Individual businesses: Many small business owners can’t afford the cost of offering a workplace pension plan. This puts them at a disadvantage when competing for talent. “The ORPP has the potential to level the playing field by offering benefits similar to that of a clearly defined comparable pension plan, which will help businesses attract and retain talent,” asserted Hunter.
Subject to legislative approval, the ORPP will be introduced in 2017, and enrollment of employers and employees in the ORPP will occur in stages, starting with the largest employers.
Read: Are employers turning their backs on the ORPP?
“We have put forward a staged approach to the enrollment and phase in of contribution rates,” said Hunter. “Large businesses without a registered pension plan will be able to start making contributions in January 2017. Medium-sized business will follow in 2018, and small businesses will have until 2019.”
Contributions will be phased in over three years. A small employer without a workplace pension plan, for instance, will begin paying contributions in 2019 at 0.8% rate, and that rate will gradually increase up to a maximum of 1.9% by 2021.
“This is a responsible, reasoned and proven approach that balances the needs of businesses today with the needs of workers in the future,” said Hunter.
By 2020, every employee in Ontario will have the retirement security of the ORPP or a comparable workplace pension plan, noted Hunter. Employers and employees who participate in a comparable pension plan will not be required to participate in the ORPP.
Hunter stressed that for a plan to be considered comparable to the ORPP, it must be registered federally or provincially, like a DB or DC plan. Next, the plan must meet a minimum contribution threshold to ensure it provides a locked-in benefit similar to that of the ORPP, replacing up to 15% of the pre-retirement income.
“We know many DC plans will be considered comparable,” she said. “For those that are not, the employers will not be required to start contributing to the ORPP until 2020. This allows them the time they need to adjust.”
Calling it a “a 21st century solution for those preparing for 21st century retirement,” Hunter asserted the ORPP will help Ontario workers take control of their economic well-being today and tomorrow—and for generations to come.
For more ORPP stories, go to benefitscanada.com/orpp