How Kathleen Wynne’s pension plan would change Ontario savings habits

How Wynne’s pension proposal could change Ontario savings habits

If the plan is implemented as proposed, many Ontarians won’t have to save for retirement on their own at all

Adrian Wyld/CP

Adrian Wyld/CP

This article by Stefania Di Verdi was first published at MoneySense:

By 2017, all Ontario employees could have access to a secure defined benefit pension plan, thanks to new legislation being tabled by the provincial Liberals. The Ontario Registered Pension Plan (ORPP) is Premier Kathleen Wynne’s response to the federal Conservatives’ decision not to enhance CPP.

Some fear the plan’s mandatory contributions would handcuff investors’ autonomy, and leave already stretched workers and employers short on cash. However, it would achieve its ultimate goal: If the plan is implemented as proposed, many Ontarians will find that they don’t have to save for retirement on their own at all.

The ORPP will require all employees in the province not already enrolled in a comparable workplace plan to sock away 1.9% of earnings (on their first $90,000) in a professionally managed, low-cost fund. Employers will have to kick in 1.9% as well.

“I think a mandatory savings program makes sense,” says pension policy expert Bob Baldwin. But he’s less sure the province will be able to deliver on its promise of predictable benefits, indexed to inflation.

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Under the plan, a worker making $70,000 would get a retirement income of $9,970 a year for life, and that’s on top of payments from the Canada Pension Plan (CPP) and Old Age Security (OAS). Combined, the ORPP, CPP and OAS could theoretically replace 55% of a middle-class retiree’s pre-retirement income. That’s enough to maintain almost the same standard of living they enjoyed while they were working, due to lower living costs in retirement.

The problem is, salaries could suffer as employers struggle to top up workers’ ORPP accounts. “Most employers can’t afford to pay the 1.9%,” says Baldwin. “That will lead to lower wages down the road.” As well, Ontarians will have less control over their retirement savings and how they are invested.

Baldwin, for one, says that could actually be a benefit though, as it will make workers less reliant on overpriced mutual funds and expensive advisers. “The return on investment will be better than with the typical RRSP,” he says, “due to the lower costs.”


How Wynne’s pension proposal could change Ontario savings habits

  1. If the ORPP is mandated to achieve returns without regard to other considerations, then I think it could be a good thing. However, if it is subject to political manipulation/whims/etc (e.g., forced to invest in green tech or the auto industry despite the expectation of below market returns) then it would decidedly not be a good thing. I imagine that the temptation for a government to not keep an arms length distance from the ORPP will be immense once the plan’s assets become sizable, so I hope there is something in the legislation that explicitly disallows government meddling.

    • Unfortunately, anything kathleen Wynne and her Libs touch turns to sludge pretty quickly. They are economically incompetent.

      What you will see, is just what you fear. Given the inability of Wynne to understand that spending can’t outstrip revenue, you can be sure that any money collected under the guise of “pensions” for the people of Ontario would be confiscated by the Liberals and used for their ill-thought out policies such as the Green Energy act, etc.

      They will take the money…..blow it on something useless, and leave the mess for the next government that comes in. Oh…and she’ll no doubt blame Harper when the plan blows up in her face.

      • Hudak lost…give the hokum a rest.

  2. This will do little for personal retirement plans. May even hurt them by giving irresponsible citizens a false sense of security that the government will take care of them. Bad mistake. And on the flip side, it could send more employers running for the US to avoid the governments insatiable need to draw more from the private sector to keep paying unfair compensation to the bloated Public Service. It’s really an ugly path.