Ontario blazes provincial pension plan trail

But small business warns new plan could create financial burden for employers

If Ontario’s intentions for a provincial pension plan move forward, workers will have another means to bolster their nest eggs. But some employers say if the provincial plan goes ahead, they won’t be able to keep their heads above water.

At the end of January, Ontario Premier Kathleen Wynne announced the government would introduce details of its own pension plan this spring. The move came shortly after the federal government balked at an attempt to expand the Canada Pension Plan (CPP).

While details of the Ontario pension plan have yet to be released, the government has struck a panel of pension experts — headed by former prime minister Paul Martin — to finalize the details.

Ontarians are not saving as much as they should in order to retire comfortably, according to Wynne.

The latest longevity reports have indicated Canadians are living longer, pointing to a need to either save more or retire later. Last summer, the Canadian Institute of Actuaries commissioned its first-ever study looking at mortality tables for Canadian workers.

Their findings? Canadians are living longer — the average 60-year-old man is now expected to live for an additional 27.3 years, up 2.9 years, while a 60-year-old woman is expected to live an extra 2.7 years, up to 29.4 additional years.

“We are taking action now to address this urgent need,” said Wynne.

“This will be a quick process. Protecting people in their retirement is a key part of our economic plan to invest in people and to build the right infrastructure and create a business environment that is innovative and is dynamic.”

What is known for now is that a pension plan would be governed by an arm’s-length agency, similar to the Healthcare of Ontario Pension Plan (HOOPP), said Keith Ambachtsheer, director of the Rotman International Centre for Pension Management and a member of the government’s advisory panel.

“We have to stop using words like ‘defined benefit’ and ‘defined contribution’ because they really don’t describe the future,” said Ambachtsheer. “(It’s) a retirement savings plan where somewhere down the road you can buy deferred annuities.”

But not everyone is on board with the idea.

“The only thing that could be worse for small business than a Canada Pension Plan expansion would be the creation of a provincial version of it,” said Dan Kelly, president and CEO of the Canadian Federation of Independent Business (CFIB), adding the pension plan is simply another payroll tax small businesses simply can’t afford.

But that is not the case, said Wynne.

“This is not a tax, this is about an investment in the future. It is money that goes into a plan that will allow people to retire more securely and this is not money that goes into the provincial treasury,” she said.

“Taxation implies that somehow this is money that goes into the provincial treasury to be spent by government. It’s money that goes into plans, money that is then invested in the economy, and then creates a return for people in the future. So this is, by definition, an investment in the future.”

Another concern is an Ontario-based pension plan would affect competitiveness between Ontario and other provinces. While Wynne has extended the invitation to join a provincially regulated national pension program to other provinces (and piqued the interest of at least Prince Edward Island and Manitoba), if Ontario ends up flying solo, the consequences could be dire for independent businesses, said Kelly.

“If other provinces didn’t sign up, Ontario businesses would end up paying more than their counterparts in other provinces into retirement savings,” he said. “If they force anyone to do this, then it should be on the employee side, not the employer side.”

But the need to have another retirement savings option is clear, said Kelly, whose preference is to have a pooled registered pension plan (PRPP).

Pooled plans are available to employees whose workplaces do not offer pension plans. In 2012, the federal government passed the Pooled Registered Pension Plan Act, which passed the buck of pension management over to a third-party administrator.

In December 2013, Quebec introduced the Voluntary Retirement Savings Plan Act, which makes it mandatory for employers of a certain size without pension plans to automatically enroll employees in a PRPP. The legislation comes into effect July 1.

“We like the PRPP vehicle, recognizing it’s not a universal fix,” said Kelly.

“It allows employers or employees, who have the capacity, to have access to a much better retirement savings tool than they’ve had in the past.”

One-third of CFIB’s membership have indicated they would be willing to implement a PRPP, said Kelly.

The remaining two-thirds, however, do not have the financial capacity to implement a third-party retirement option — and being forced to do so could mean less money available for salaries and other benefits.

Despite these arguments, others have touted an Ontario pension plan as necessary. Take Bernard Dussault, a pensions expert and former chief actuary behind the CPP, who said in order to produce a well-oiled pension plan, Ontario should model its program in the same vein as the federal plan.

“The main features being that it be mandatory, it be a defined benefit plan as similar as possible to the Canada Pension Plan. That it be fully funded, because any amendment to the Canada Pension Plan shall, by virtue of a recent amendment, be fully funded,” said Dussault.

Of particular concern is other provinces might not be able to handle such a heavy burden and cannot follow suit.

“It’s a big undertaking. Because Ontario is big, it’s fine — but any of the Maritime provinces I think would not have the financial strength to go there,” said Dussault. “This is a big organization. I’m not saying it’s impossible — it’s a big institute to put on its feet.”

First, a middle ground needs to be established, said Ambachtsheer.

“Given that CPP enhancement is off the table and given that PRPPs are purely voluntary — are basically non-entities — you need something that’s in between those two,” he said.

Ontario’s pension plan advisory group is slated to report back ahead of the provincial budget this spring, after which a plan would have to be approved at Queen’s Park.

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