Saving face: Dissecting Wynne’s pension reform plan

Why Wynne has put a provincial pension at the centre of her plan to right the power imbalance between Ottawa and Ontario

MAC20_ONTARIO_ELECTION_ story

In hoping to appeal to enough leftist voters to win a majority government, Ontario Liberal Leader Kathleen Wynne has signalled that her real opponent in this election is Prime Minister Stephen Harper. That’s no small irony, given that the flagship proposal of her campaign platform—a made-in-Ontario retirement system—looks set to steal many of the federal Conservatives’ ideas on pension reform.

Since the official start of the campaign last week, Wynne has done her best to distance herself from her scandal-plagued predecessor, Dalton McGuinty, by positioning herself as the best person to defend Ontario values against a Conservative federal government backed by Western Canada and intent on harming Ontario’s interests at every turn. “In a very real way, the federal government is balancing its budget on the backs of Ontarians,” Wynne told a gathering of supporters in Ottawa earlier this week. The latest evidence Ottawa is snubbing Ontarians, Wynne told the Toronto Star, was that Harper had “smirked” at her during a December meeting in which he shot down her plan for an expanded Canada Pension Plan.

Having been rebuffed by the feds in her attempt to shore up the retirement savings of middle-class Canadians by boosting CPP contributions, Wynne has put a provincial pension at the centre of her plan to right the power imbalance between Ottawa and Ontario. A skeletal version of the Liberals’ proposed Ontario Retirement Pension Plan emerged in the budget in early May, promising a system modelled on CPP but with some very important differences that may not entirely please the left-wing flank of the Liberal base.

The plan calls for both employees and employers to pay a combined 3.8 per cent of their wages into a pension fund that ultimately aims to replace 15 per cent of workers’ pre-retirement income. In that respect, it looks like a scaled-down version of CPP, which pays out 25 per cent of pre-retirement income and is funded by contributions of workers and companies totalling 9.9 per cent of income. But significantly, the Liberals appear to be giving themselves some wiggle room when it comes to how they plan to structure the pension by saying the fund would “aim” to pay out 15 per cent of income, says Fred Vettese, chief actuary of Morneau Shepel. To a veteran actuary like Vettese, that suggests the party is looking to roll out a version of a target-benefit pension plan in which both contribution and benefit levels can change from year to year depending on whether the pension plan hits its funding targets.

Under such a plan, benefits could hit the 15 per cent target in some years, but be much smaller during an economic crisis when unemployment soars, pension contributions plummet and investment returns sour, as they did in 2008 when Canadian pensions were forced to continue paying the pre-crisis benefits even as they were losing billions. The Harper government announced last month it was pushing for Crown corporations and federally regulated companies to adopt target-benefit plans, calling them a “sustainable and flexible pension option.”

Another Ontario Liberal proposal culled directly from the Harper playbook is a proposal for Pooled Retirement Pension Plans (PRPPs), which the federal government launched in 2011. PRPPs are nearly identical to workplace group RRSPs, except that employer contributions are both voluntary and tax-free, which is why they’ve been backed by pro-business and taxpayer rights’ groups as an attractive option for companies who want to encourage employees to save without having to pay into their own workplace retirement programs. Unlike Quebec, however, which embraced PRPPs but made it so employees are automatically enrolled and then have to apply to opt out, Ontario’s proposal is entirely voluntary and has received little attention in the election so far. That seems odd, says Vettese, given the Liberals’ insistence that governments should be encouraging middle-class Canadians to save more for retirement. “They want to show voters there’s a made-in-Ontario solution,” he says. “PRPPs are the brainchild of the federal Conservative government and I don’t think they’re all that keen on having a Conservative government proposal succeed.”

The strangest aspect of Ontario’s pension plan is how it proposes to treat low-income workers. While the Liberals haven’t settled on the details for how much workers must earn before they have to start contributing to a provincial pension plan, the budget references the threshold used by CPP—which requires workers to start contributing on earnings above just $3,500 a year. Low-income Canadians are already well-served by the variety of federal programs aimed at supporting impoverished seniors, says Vettese—so much so that Canadians who make less than $25,000 a year during their working lives often end up earning more than that in retirement, meaning that they’ve been essentially forced to oversave during their working lives.

An Ontario pension that keeps the same $3,500 income threshold would have the effect of driving up retirement income so high for many low-income Ontarians that they would see some of their federal retirement benefits clawed back. For every $2 earned from an Ontario pension, Vettese says low-income retirees would stand to lose $1 in payments from the federal Guaranteed Income Supplement, a federal program aimed at boosting the income of the poorest seniors. Since money from the income supplement comes out of the federal government’s general revenue—essentially transferring money from wealthy taxpayers and businesses to poor seniors—an Ontario pension plan could ultimately mean that Ottawa gets to spend less on Ontario seniors, while the province’s poorest workers pay more.

“You’re forcing them to save money that will end up providing them with a much better standard of living when they’re retired than when they were working,” says Vettese, who nevertheless supports the Ontario provincial plan but wants to see a minimum income threshold of at least $25,000.

There are other risks associated with Ontario’s pension plan, including the worry that companies will decide to set up shop in another province to avoid having to pay into the fund. Facing a $12-billion budget deficit last year, soaring hydro rates and an export market that has yet to recover from the 2008 financial crisis, some worry Ontario’s economy can’t afford to scare off any more employers.

“A two per cent cost isn’t huge, but it could drive investment decisions,” says Paul Forestell, senior partner at HR firm Mercer Canada. While he supports expanding CPP, Forestell says forcing employers to pay into a separate provincial pension plan makes it complicated for large national employers who operate in different provinces, as well as employees who move around for work.

Meanwhile, those Ontarians old enough to be in the workforce likely won’t be seeing much in the way of benefits from any new provincial pension plan. It will be at least at 30 years before workers will see significant returns and 40 years before they’ll qualify for the full benefit. That’s cold comfort for today’s aging workers heading into retirement. But, says Vettese, the crop of workers heading into retirement today don’t really need the extra help. “There really isn’t a retirement crisis in Canada right now,” he says. “Retirees for the most part are actually doing very well.”




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Saving face: Dissecting Wynne’s pension reform plan

  1. Fred Vettese, chief actuary of Morneau Shepel, in the article says: “There really isn’t a retirement crisis in Canada right now. Retirees for the most part are actually doing very well.” Vettese, who works for a company that posted revenue of $131.1 million for the first three months of this year, will no doubt retire with a huge pension and will do “very well.” Of course, like all other corporate executives and politicians like Stephen Harper who will retire with pensions paying them more every month than most of us will make in a year, have no clue what the ordinary working person must do just to put food on the table when they retire. An out-of-touch executive who shrugs off a reality he knows nothing about.

    • MPs, all parties, get a 10.4% rate guaranty with our wallets. Only 6 years to vest and retirement 55. 100% indexed to inflation too. Civil service is top of the line as well. Not the same rules for you and I as government.

      Government pensions 55 even has a tax loop hole allowing government and politicians to get full pensions and get income spiting and pension deduction amouts at 55, but because our RRPS/LIRA/LIF/company plans get classified under a slightly different category, we must air for this perk until 65/67.

      Never seen a government job be hard on a body like many commoner jobs, yet commoners have to work to 65/67 and soft and easy on the body government chair jobs get 55… the hypocrisy and double standards should make commoners livid. As retired commoners, disabled get to do without so these self important greedy can rup us all off. Sad to say, but disabled in Canda, the REAL disabled would be better off on retired, better off as a immigrant, better off as a FN, better off than able EI than on CPP/Disability. Out social plans? A total farce. Even USA Medicare/Medicaid/Social Secutiy includes drugs, health care and dental for disabled,even pays more.

  2. If there is no retirement crisis, then why did the Feds raise the retirement age to 67?

    • 1) There is no crisis from the recipients point-of-view, but there is an affordability issue from the payee’s point of view for OAP.

      2) The government would rather save modestly from OAP to have more funds to pay for the health care costs of aging boomers. There is only one taxpayer. Because one part of the social safety net (OAP) is not a critical burden on resources, health care for aging boomers is going to be so one should try to save modestly from other parts of the social safety net to make sure there are enough resources for health care.

      • I hear what you are saying and agree with you; to a certain point. I worked for several years with the National Citizens Coalition in Toronto (a Conservative “think tank”) and graduated to work with the Reform Party in Ottawa, in the 1990′s; so I had a good education on how the Corporate sector and its relationship to government works. You are right, there is only one taxpayer and there is only one pot of money. The problem is, that part of the pot going to the Corporate sector continues to increase while the portion of the pot going to the average taxpayer keeps getting smaller. So, as Corporate taxes shrink (and at the same time Corporations flee the country to set up sweat shops in China, etc.) fees, levies and other taxes in disguise keep rising for the rest of us. So, the problem isn’t a lack of funds, it’s a lack of funds going to the people who built this country, the real working people, who are suffering and will continue to suffer as money for health care and pensions decrease or at least don’t keep pace with the cost of living.

      • We shoudl keep it simple. CPP has been mismanaged for 3++ decades, and has had ROI that is negative to inflation. Add in some that didn’t contribute much and able get more than they paid in at the expense of long term workers.

        $100 invested last year for 1% return, but stuff this ear costs not $1010, but $1050…..that is negative value investing. Its what all “pooled plan” scams require more money to pay out less.

        I put less money in my RRSP than CPP on employer/employee amounts yet even at 50, the dividends alone were more than CPP/OAS.

        No honest economist would dare print the honest truth of CPP return on investment as when you do, CPP is a employment tax with low residual value.

        And my wife/estate gets my retirement funds without the actuarial BS and scamming. A well funded plan is where capital grows with inflation and you live on the dividends, so if you live to be 500 you pension is solvent.

        Investment performance matters 100 times more than age/longevity. Its like a mortgage but reverse, not much payment difference between a 30 year and 40 year mortgage monthly payment, same is true of pensions. Performance matters more, and Ottawa botched CPP and now its critical. None of the stinking self serving parties over the last 3 decades has addressed it.

    • You aren’t a “Conspiracy Theorist” now are you Walter? Or, do you, like me, dwell on Conspiracy Facts? You brilliantly hit the nail squarely on the head.

      • Its not so much as consipracy as it si statism fraud. Make lots of promises, poorly invested, paying out too much to people who didn’t pay….do it for 30+ years and you have a $300 to 500 billion dollar shortfall.

        All parties, all politicians ignored it and now the plans are massively underfunded.

        Money isn’t there, but they got a lot of CPP taxes out of people in the ruse of social-statism. Ended up being a big scam of deception.

        Do an ROI on all the CPP you have or will pay over say 40 to 45 years of work, the CPP ROI, while better than NorTel stock, is a negative value depreciating investment. Its mostly a tax to subsidize Ottawa pension mismanagement.

    • Switch and bait, part of the statism corruption in Canada. Once Ottawa gets the money, they change the rules. Fraud really, but who is going to charge governemtn for screwing its people. Increase CPP taxes much faster than below inflation payouts too. 0.9% for disabled and retired, rather small even if you believe StatsCan bogus low numbers of 1.2% inflation. OAS is even less, 0.1% increase.

      Reality is CPP has been mismanaged for decades with real returns well below inflation, people contributing little but getting a lot while most people get a pretty bad ROI on CPP, and I mean bad. If an economist worth salt looked at CPP ROI (return on investment) they would call it a tax with a very low ROI. It has left a 300+ billion shortfall in CPP, more in Canda Post, Air Canada quitely picked our pockets last year for their bailouts, MPs get a 10.4% guaranteed return while the commoners get SCREWED.

      And media is careful not to tell all the truths, even CBC is looking for bailouts.

      Its all about corrupt Orwellian statism removing your economic liberty. We work hard, so hard we don’t have the time to stand back and realize we are too buy supporting governemtn kids, bailouts, money for waste governemtn bloat, we can’t aford to spend on each others jobs and have our own kids.

      Just statism greed. Politics is like religon, too much “blind faith” gets you screwed. Pensions should be in your name/account/control and if the governemtn wants “pooled plan” scams, let them define a fair return or have the freedom to decline the low returns.

      Pensions are like reverse mortgages. It doesn’t take much difference in monthly payments to have a 100 year mortgage than a 30 year mortgage. Same pensions, fund performance has 100s of times more impact than age, but they use age as a cop out, a trojan goat for public consumption.

      In my RRSP, I have contributed much less than I have paid into CPP on my behalf (employer+my part). Yet at 50 my dividends alone paid more than CPP+OAS will ever pay me, and at 57 its grown to pay 2.1 times CPP, and by the time I am 67, probably will pay 4-6 times CPP.

      Best part, is I don’t have to wait for Ottawa mismanaged CPP to tell me when to retire, as I am already retired. My RRSP, TFSA, LIRA, LIF, IRA and cash investing already push me into the top tax brackets so why work for a 45%+ tax wage rate?

      But I made sure my pension was in my name/account/control, no politics deceptions, no MER, no mismanagement for political favors and I, my with and estate don’t get “actuarial” deceptions….

    • Because they created a budget crisis, and used it as an excuse to slash benefits. CPP is in good shape.

  3. The Harper govt has been anti-Ontario for 8 years. Flaherty even told companies not to do business here….and pretty much every policy they have dings Ont.

    Time for that to end.

    • When I worked for the Reform Party in Ottawa back in the days when Ed Harper was the only MP in Ontario, we poured a lot of resources into Ontario. (In actual fact, I worked out of Ed Harper’s office but 100 percent of my work – paid for by the taxpayers of Canada – was to send Reform MP’s from Western Canada into Ontario ridings to raise the Reform Party brand. Of course, these Reform MP’s used their free airline privileges and billed the taxpayers for other expenses which were incurred for solely partisan purposes.) Now, Harper wants to ensure that the provincial Conservative Party wins so that his cut and slash policies, that he is foisting on the country, can be implemented more readily in Ontario also. Wynne is not my first choice but she is a far cry from having the Harper Lite Hudak Regime in place and being controlled from Ottawa.

      • Agreed. I was Reform for some years….both in their original incarnation and in their later one as CA.

        I also don’t want Hudak The Sockpuppet in there….or that buffoon Ford either.

        At the moment, I’d happily be an Ontario separatist.

    • Ontario socialist-statism did itself in. Its why I let Ontario in 1980 for the less taxing better wages Alberta.

      PST and income taxed less is a huge sum over 34 years. Fact is Ontario unionists and socialism bet the farm on “blind faith” governemtn as if it was a region….and now your bankrupt. Losing jobs too as with all the tax greed, real and hidden including inflated protectionism pricing you need uncompetitive wages to live there, and that drives away jobs.

      Low value money isn’t going to help you, CAD drops 10 cents off par, that is (1.00 0.90) 11% inflation to you, and 11% more costs of raw materials. And with raw materials, outside services needing 11% increases, no money for your increases. Tax companies more, they will pay you less or leave.

      A massive socialist-statism fraud by our bloated governments of wastes, bailouts of uncommon good…bankrupted us.

      • Yer an Albertan. Go concern yourself with your own province.

      • You do realize that Alberta is only the land of milk and honey you think it is because they have a bounty of natural resources they can use to fund government services rather than taxing citizens. Think Alberta’s government spends less than Ontario per capita? Think again!

  4. Wynne is superfiacial in here promises. She had her chance as talk, deception and lies are cheap, she and her party could have done this already. And the depth? No depth at all….just deception. How about a morally, ethically and fair policy right now:

    1) Governemtn workers have to wait to 67, isn’t like working for governmetn is hard on the body any more than a commoner.
    2) Have civil servants AND politicians pay into their own pooled pension scams like they shaft us with. Anyone doing a ROI on commoner CPP and pooled plan scam knows the ROI on commoner plans is a scam. Give the governemtn a incentive to fix it by making them use their own deceptive pooled pension scams they give to us.
    3) Like private plans, declining benefits with age as most plans, especially commoner plans do not keep up with real inflation.
    4) Roll back all wages and benefits to that of private industry. NO self important narcissism exceptions.

    Maybe time our politicians and their greedy unions ate the same dog food as they give us. Give them a enticement to do better. As no reason for government to always do better than the citizens that support the bloat, waste and bailout corruptions.

  5. Add Ottawa debts, add provincial debts, add CHMC bad debts and bank bailouts, add in various union bailouts and pension shortfalls, crown corporation debts, add up all city debts and pension shortfalls, add us a true no BS debt and shortfall total, we have over $2 trillion of governemtn debt.

    People naively think Canada is better than the US, but the US counts Social Security and government pensions shortfalls as debt, Canada does not. If we report the same way, Canada is actually in slightly worse shape than USA.

    Fact is Ottawa has bankrupted and taxed us like slaves. When we gave up our economic liberty for “government” Orwellian-statism security, many many retired are going to see poverty. Ottawa operates the largest ponzi scheme in Canada….and you get devalued money and inflation protectionism and taxes too boot….just statism greed.

    We need to question more on how Ottawa and provinces collectively spend the $630 billion they take form the economy (and thats us) and question the value of what do they do to justify this massive wealth grab? What can they cut? As this massive tax grab also makes us a tax inflated economy of debt requiring uncompetitive wages to live…and why we lose jobs.

    Heck, you have to earn $800,000 to by a tax out home for $200,000. You loose half your wages to income/employment/property/utility/education taxes, then workers and material taxes eat 1/2 of the $400,000 purchase price so you get a $200,000 tax out home you paid $400,000 for. (Bank interest extra). And we don’t see us as economic slaves of statism?

    Reason government can’t fix economic problems is that their collective statism, tax and debt our kids for bloat, bailouts, excessive wastes, money for nothing programs isn’t sustainable. Not even having enough of our own kids, as we are too busy supporting government kids.

  6. The pension system in this country is getting too complicated. The average working person will soon be at a lose to figure it all out. we have cpp,oas rrsp, tfsa,prpp, a new Ontario plan?, Add to that defined benefit plans, defined contribution plans .Many do not understand how they work. Way way too complicated. The fees to operate these things is also mind bogling.

  7. Only a small percentage of people will be able to live well in retirement. But those are the only people Harper associates with, so he thinks everything is hunky-dory.
    Most pension plans in the private sector are no longer defined benefit, so what they’ll be worth when you retire is anybody’s guess. It makes sense for government to smooth out the irregularities. And if you think you can keep working until you’re 70 think again. Most companies lay off people in their 50′s so they can hire someone younger and cheaper. Plus you may not be able to do your job, physically or mentally, at that age. In other words working past 65 may not actually be your choice.

  8. Or “aim to” could mean that they are phasing in the program.

    As to the program using the same reference points as the federal CPP, that is a very smart thing. Eventually, once Harper is finally turfed, it might be possible to roll the Ontario pension plan into the CPP and so reduce the costs of having two separate plans. (Costs could be shared.) It is forward-thinking to set up this plan so that that will be possible.

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