Although the investment community is discussing the impending Ontario Retirement Pension Plan (ORPP) intensely, one financial advisor believes the general public is still unaware of how the plan will affect people.
“I don’t think the average person on the Street, or even my clients, many of whom are entrepreneurs, really understand what this is going to mean,” says Scot Bolton, a financial planner with the wealth-management division of Good Redden Klosler in Tillsonburg, Ont.
Bolton is one of the signatories to a Toronto-based Ontario Chamber of Commerce letter sent to the provincial government regarding the chamber’s concerns about the ORPP.
Although Bolton has had a few conversations with clients about the ORPP, he is also waiting for further clarification on the structure of the plan before engaging in extensive discussions with clients.
Specifically, these clients — whether they are employers or employees — will want to know where these public pension plan contributions will be going; how the money will be managed; and how Ontarians will benefit in the end, he says.
Another issue Bolton would like to see clarified before tackling this topic with clients is the meaning of a “comparable pension plan.” The Ontario government has stated that employers with a “comparable pension plan,” defined as a defined-benefits pension plan, will be exempt from implementing the ORPP that is to take effect in 2017.
Bolton supports the idea of encouraging Ontarians to save more, however he is one of many voices in the financial services sector calling for a more inclusive definition of a comparable plan, which would include defined contribution [DC] plans and group registered retirement savings plans [RRSP].
“I’m not sure that exempting [DC plans] or group RRSPs is in the best interest of this initiative,” he says.
In its letter, the chamber states that it supports the provincial government’s policy objective of helping all Ontario workers save for retirement. but it does not feel the ORPP is the right tool to accomplish this.
The chamber argues that many employers already contribute to their employees’ retirement savings through a variety of pension plans and that those plans often involve contribution levels higher than what is being stipulated for employers through the ORPP. Employers and employees will be mandated to contribute 1.9% each on an employee’s annual earnings up to $90,000.
“For example, the average company contribution rates to DC plans and group RRSPs in Canada are 5.2% and 4.3%, respectively,” according to the chamber’s letter.
The chamber is also concerned that the Ontario government’s plan will counteract its own goal of increasing Ontarians’ retirement savings if it adds costs to employers who already contribute to their workers’ retirement savings.
Specifically, the chamber’s letter cited an Environics Research Group survey released in February, which found that 66% of Ontario companies would consider eliminating their existing workplace pension plans while 78% of companies are likely to reduce their contributions.
The chamber states that the government’s current definition of comparable pension plans would exclude the workplace plans of more than 2.4 million Ontarians.
“Given these concerns, we strongly urge your government to expand its definition of pension plan comparability to include capital accumulation plans, including (but not limited to) defined-contribution plans,” the letter states.
Several Ontario chambers of commerce, boards of trade and executives of financial services companies, such as Great-West Life Co. Inc, Manulife Financial Corp. and Sun Life Financial Inc. signed the letter. Financials services sector organizations such as the Independent Financial Brokers of Canada and the Federation of Mutual Fund Dealers also added their signatures.