(May 5, 2014) — The Ontario government has announced a proposal for a new pension plan for the province’s public employees that would double retiree benefits in its 2014-2015 budget.
The “made-in-Ontario” solution, called the Ontario Retirement Pension Plan (ORPP), will largely resemble the federal Canada Pension Plan (CPP) but also be the first of its kind in the Great White North.
“The ORPP would expand pension coverage initially to more than three million working Ontarians who currently rely on the CPP, Old Age Security, and their own savings for retirement income,” the Ministry of Finance said in the budget.
The plan would “pool longevity and investment risk, and index benefits to inflation, similar to the CPP’s retirement benefit,” require employee contributions not exceeding 1.9% of earnings to be matched by the employer, and will aim to replace 15% of an individual’s earnings.
With these design features, the ORPP would provide a 60% increase over the maximum CPP benefits for individuals with 40 years of earnings over $52,500. For employees with 40 years of earnings over $90,000, benefits would double those of CPP.
“We have a duty and must do more to ensure that people have adequate savings in their retirement,” said Charles Sousa, Ontario’s Finance Minister. “Middle-class Canadians know that the current CPP isn’t adequate for their retirement. Unless we take action, future generations of retirees will be left with a lower standard of living.”
The initiative was prompted by the Canadian government shutting down discussions about pension reform last year, talks the Ontario Ministry has led since 2010. In 2013, the province was chair of the Council of the Federation and cooperated with provincial and territorial finance ministers for a possible CPP enhancement.
According to the ministry, Canadian workers are unprepared for retirement. Only 34% of Ontario’s workers belonged to a workplace pension plan in 2012 and a third of all Canadians said they plan to make contributions to their registered retirement savings plans in 2014.
“The basic structure of the CPP has not changed since the plan was created in 1966,” it claimed regarding replacement rates and workers’ contributions. “Despite the consensus among provinces and territories to continue this collaborative effort, in December 2013, the federal government unilaterally shut down CPP enhancement discussions.”
As an alternative, the ORPP would build upon the CPP structure aiming to be integrated with it as negotiations resume. The ministry also expressed interest in incorporating other provinces into the program.
The legislation for the ORPP will be introduced in 2017. If passed, the plan would take in annual contributions of about C$3.5 billion ($3.2 billion). Implementation would begin with the largest employers, with contribution rates phasing in over two years.
“Ontario is home to some of Canada’s largest and most highly regarded pension funds,” Sousa said. “Consideration will be given to how to leverage the expertise of these public-sector pension plans with respect to their strong governance and proven investment track record. And we will continue to encourage the federal government to do the right thing, and enhance the CPP, which is still our preferred option.”
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