Pensions: Taking a different route

Now, after sweeping to a surprise majority government, the Liberals will have free rein to implement many of the promises they ran on during the election.

These policies represent a fundamentally different vision for the retirement savings system in Canada than that of the outgoing Conservatives.

The Tories adamantly opposed a comprehensive expansion of the public pension system as a potential “job killer.” Instead, the Conservatives insisted that enhancing the ability of Canadians to provide for retirement should be left to the private sector or, at the very least, that any enhancements should be voluntary.

To that end, during the Conservatives’ time in power, that party was responsible for introducing both pooled registered pension plans (PRPPs) and TFSAs. And the Conservatives’ most recent budget had boosted the annual contribution limit for TFSAs to $10,000 from $5,500.

During the prolonged election campaign, the Conservative government made a gesture toward marginally expanding the CPP by launching a consultation on the idea of creating a voluntary supplement – but the governing Conservatives were philosophically opposed to a fundamental, mandatory expansion of the CPP.

This stance led the provincial Liberal government in Ontario to devise a controversial new provincial public-pension program – the Ontario Retirement Pension Plan (ORPP) – as an alternative to a fundamental expansion of the CPP. Now, in the wake of the federal Liberals’ victory, the fate of the ORPP seems to be somewhat in doubt.

The ORPP, which is scheduled to begin being phased in in January 2017, might be scrapped before it gets off the ground.

In response to the federal election results, a report from BMO Capital Markets, a Bank of Montreal subsidiary, noted:”Enhancements to the Canada Pension Plan likely mean that the proposed new Ontario Retirement Pension Plan will be officially put on ice. Ontario Premier [Kathleen] Wynne has already clearly indicated this direction.”

The ORPP was hatched largely out of frustration over the inability of the provinces to secure an agreement with Ottawa to expand the CPP. With the primary roadblock to boosting the CPP removed, a deal to expand the national pension system may be well within reach. The question now is whether the provinces and the feds will reach a deal that actually renders the ORPP unnecessary.

As Investment Executive went to press, Justin Trudeau, the incoming prime minister, had yet to name his cabinet, including the all-important finance minister. That announcement was slated for Nov. 4. And the Liberals have yet to lay out any details about exactly how they intend to expand the CPP.

Moreover, notwithstanding the Liberals’ majority in federal Parliament, any deal to alter the CPP fundamentally requires substantial provincial co-operation. Seven of the 10 provinces, representing two-thirds of the population, have to agree before changes can go ahead. And any major expansion of the CPP surely will face opposition from the financial services sector.

Ian Russell, president and CEO of the Toronto-based Investment Industry Association of Canada, says that he doesn’t see the need for major changes to the CPP, although there are segments of the population who could benefit from increased savings. Russell believes that the new federal government will approach the issue with an “open mind.”

The same sentiment is echoed by Joanne De Laurentiis, president and CEO of the Investment Funds Institute of Canada (IFIC), who also says she expects the new government to be open to IFIC’s views on the appropriate policies for retirement savings reform.

Nevertheless, there’s a much better chance of CPP reform under the incoming government than there was under the previous one. Not only did the outgoing Conservatives oppose boosting the CPP, they directed the federal bureaucracy not to co-operate with Ontario’s plans to introduce the ORPP.

That attitude now certainly has changed. Trudeau and Wynne, following their meeting on Oct. 27, their first since the federal election, issued a joint statement declaring that they “will be active partners in the national discussion on pension enhancement, including the CPP and ORPP.”

Other changes planned by the new federal government to the retirement savings system appear more likely to proceed. Among them, the federal Liberals have promised to scrap the Tories’ plan to hike the age for eligibility for the OAS and the GIS from age 65 to 67; the hike had been slated to take effect gradually beginning in 2023 and ending in 2027.

The Liberals also have promised to hike the GIS by 10% for single, low-income seniors. And the party plans to introduce a “seniors price index” to help gear those benefits to inflation.

As for the financial services sector’s private savings vehicles, the federal Liberals have pledged to roll back the increase to annual TFSA contribution limits that was enacted this year by the Tories. And the Liberals have promised to provide more flexibility to RRSP accountholders to draw upon their registered savings.

The details of these proposals have yet to be fleshed out. As well, the incoming Liberal government hasn’t had anything to say about PRPPs specifically.

So far, four of the big life insurance companies have done the spadework to set up PRPPs, but whether those savings vehicles gain any traction in the marketplace may well be determined by the scale and scope of any enhancement to the CPP that the Liberals manage to achieve.

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