The Ontario government’s proposed Ontario Retirement Pension Plan (ORPP) is poor public policy and should be scrapped, according to Jack Mintz, president’s fellow, School of public Policy, at the University of Calgary.
“It would be far better to push other retirement income reforms that largely require federal leadership,” Mintz told the national conference of the Portfolio Management Association of Canada in Toronto on Tuesday. This could involve Ottawa moderately expanding the Canada Pension Plan (CPP), assuming the necessary provincial agreements could be secured, or taking measures entirely on its own if such an agreement would not be possible.
Mintz termed the ORPP “an intrusive plan predicated on the belief that Ontarians do not save enough.” There is no evidence that is the general case, he said: “Instead, the plan will impose a significant tax on employees and employers with several flaws.”
Among other problems, Mintz said, the ORPP would:
> Impose an unnecessary burden on Ontarians, particularly young workers raising families and buying homes. Most Ontarians, Mintz says, “will have adequate income in later years anyway.”
> Extend benefits unnecessarily to two working employees who have up to $180,000 in income.
> Be expensive to administer with people moving in and out of the province. As well, “taxpayers will be on the hook for any pension deficits arising from poor financial returns and future liabilities, a problem that can be exacerbated if funds are directed by governments to be invested in pet programs.”
> Would disrupt labour markets in Canada by creating incentive for some employers and employees to move in or out of the province depending on circumstances.
The ORPP is scheduled to begin Jan. 1, 2017 and would require mandatory contributions from employers and a matching amount from firms that do not offer pension plans. Those workers with defined-benefit and sufficiently large defined-contribution plans would be exempt from the ORRP.
Mintz suggested that consideration could be given to a moderate expansion of the CPP to target several critical areas, including:
> Providing more support to those with annual incomes of between $20,000 and $60,000. Mintz said that research has shown some members this income group have difficulty securing enough retirement income.
> Assisting more single seniors. Studies have demonstrated that Canada’s social safety net has protected about 94% seniors from poverty, but single seniors may not be faring so well. Studies have indicated, Mintz said, that the poverty rate among single seniors is 20%.
Mintz acknowledged, however, that reform of the CPP would be difficult given that seven provinces that represent two-thirds of the population would need to agree on the changes.
“My understanding is that there may not be sufficient provincial support for any expansion of the CPP in part due to its economic impact on working Canadians when the economy is weak,” Mintz said.
But improving the retirement income system would still be possible without reforming the CPP or introducing programs such as Ontario’s ORPP, he said, noting that Ottawa could move unilaterally in several areas to address the issue.
“This includes improving its own retirement policies such as increasing contribution limits for tax-free savings accounts (TFSAs), registered pension plans and RRSPs,” Mintz said. “It could even provide a grant to low and modest income Canadians to invest in special TFSA subject to a clawback if funds are taken out before the official age of retirement.”
Furthermore, Mintz said the federal government could also “redefine the eligibility for most of its programs and tax credits to make them begin at the age of 67.”
Editor’s note: Rethinking Retirement, a special feature from the Mid-November 2015 issue of Investment Executive examines such topics as helping single retirees, using insurance-based income products, helping clients manage debt in retirement, planning for longevity and much more.