The Ontario Government’s proposed Ontario Retirement Pension Plan (ORPP) is hitting a solid wall of business opposition.
The purpose of the plan is to provide a supplement to the Canada Pension Plan (CPP) for the roughly 60% of Ontario workers who lack a defined-benefit workplace pension. The new provincial pension aims to increase retirement incomes of those enrolled by nearly as much as the benefits paid by the CPP.
But Ontario business is doing everything it can to make sure the new Ontario pension plan never sees the light of day.
Ironically, business is backing another newly introduced Liberal retirement savings option – the Pooled Registered Pension Plan (PRPP). On December 8, two separate pieces of legislation were introduced by the Ontario Liberal Government: one enabling an eventual ORPP and the other, PRPP’s.
The Canadian Federation of Independent Business (CFIB) is one employer group that is opposing the mandatory Ontario Retirement Pension Plan (ORPP) saying the voluntary PRPP’s are all that is needed. No employer contribution is required in a PRPP while a 2% (of payroll) employer contribution would be required under the ORPP.
“We welcome today’s introduction of the Pooled Registered Pension Plans Act which will bring forward a voluntary, low-cost and administratively-simple savings plan for Ontarians,” said Nicole Troster, CFIB’s senior policy analyst for Ontario. “By taking this initial step, Ontario joins the federal government and a growing list of provinces that have already introduced or passed such legislation.”
“We expect PRPP’s to make it easier for small businesses to contribute to a retirement plan,” said Troster. “We see the PRPP as being a more affordable tool for enhancing retirement savings, but we caution the province that implementing a mandatory ORPP would significantly diminish the financial capacity of Ontarians to contribute to voluntary options, as well,” concluded Troster.
The tabling of mandatory ORPP legislation covering roughly 60% of Ontario workers also raised strong objections from Canada’s life and health insurers – the principle sponsors of PRPP’s.
Specifically, the Canadian Life and Health Insurance Association (CLHIA) took issue with a recent consultation paper’s description of one of the key features of the Ontario Retirement Pension Plan (ORPP). Employees who already have “comparable” workplace pension plans are not required to enroll.
What the insurers object to is the government’s definition of a “comparable” plan. The consultation paper says “comparable” would not include the defined-contribution (DC) plans many companies have adopted as a substitute for defined-benefit plans. Nor would PRPP’s be considered “comparable” to the ORPP. Insurers such as Manulife Financial Corp. and Sun Life Financial Inc. often act as DC plan providers and administrators and will be offering PRPP’s as well.
That definition of “comparable” means that employers currently offering a defined-contribution plan would have to contribute to the ORPP as well.
The provincial government’s reason for excluding DC and PRPP plans is that they don’t offer a “predictable stream of retirement income that is paid for life” the way the ORPP will. The DC plans don’t necessarily protect people from outliving their savings, the paper states, adding that employee contributions aren’t always equally matched by employers and those enrolled often run the risk of lower-than-expected returns.
The big insurers argue that more than 600,000 Ontario residents are using DC plans for retirement savings successfully, and that the introduction of a mandatory ORPP may cause companies to drop existing DC plans.
Why the big banks and insurers are wrong and why the ORPP is a good deal for Ontario workers
While employers, insurers and the big banks may make a lot of noise in opposing the CPP-type ORPP, their arguments for opposing the plan are deeply flawed. Two-thirds of Ontario workers don’t belong to a workplace pension plan and must rely on a combination of their own savings and public programs. The problem is that these workers are living longer, not saving enough, and are not sufficiently protected by mandatory pension schemes.
There is also a whole lot of employer and insurer self-interest involved in opposing the ORPP.
Employers don’t want to make contributions to a new pension plan and insurers don’t want competition to the DC and PRPP plans they offer. Insurers and banks make billions of dollars in fees by sponsoring DC plans and RRSP’s and will make billions more once PRPP’s are offered across Canada.
Labour, the NDP and the provincial Liberal government correctly maintain that while the publicly administered CPP is fundamental to the retirement income security of Ontarians, its benefits alone are too low to meet the post-retirement needs of middle-income earners. The CPP currently pays a maximum of about $12,500 a year, and the average annual benefit paid is far below that, at about $6,400 in Canada and $6,800 in Ontario.
The design of the ORPP mirrors many of the key features of the CPP. This has the two-fold benefit of building on a well-known, trusted and successful model, and of providing for seamless integration with any future expansion of the CPP. The Ontario Government has assembled a big-name line-up of external pension and retirement income advisers including former prime minister Paul Martin, former Bank of Canada governor David Dodge and Michael Nobrega, the recently retired CEO of the OMERS pension plan.
When former Prime Minister Lester Pearson introduced the CPP in1966, the big insurers and banks did everything they could to kill it off in order to protect their fees from retirement savings products like RRSP’s.
The banks and insurers were wrong then and they are wrong now.
The CPP-type ORPP should be implemented as soon as possible and the PRPP’s favoured by the banks and insurers should never see the light of day.
When it comes to ensuring that Ontario workers can retire with dignity and justice, the self-interested arguments of the big banks and insurance companies should be rejected for once and for all.