Ontario’s pension pains

PHOTO: THINKSTOCK

Ontario’s Liberal government ruffled a few feathers – OK, a lot of feathers – when it revealed it would go ahead with the Ontario Registered Pension Plan (ORPP). Businesses and business associations across the province (unanimously) agree it’s an unnecessary added cost to bottom lines, a barrier to attracting investment and an impediment to economic growth.

ORPP, passed in April, will be introduced gradually over two years starting in 2017. Premier Kathleen Wynne said it’s intended to cover people without workplace pension plans, providing extra retirement income in concert with Canadian Pension Plan (CPP) benefits, specifically for low- and middle-income workers – the program’s main target group.

Wynne, who engaged in a very-public game of he-said, she-said with the federal Conservatives over their unwillingness to enhance the CPP, said about 3.5 million workers are expected to participate in the program. Federal finance minister Joe Oliver told Wynne in a July letter that the government would not make any legislative changes to allow Ontario’s plan to be treated like the CPP for tax purposes, or to integrate it with RRSP contributions limits.

Wynne’s government believes Canada’s current retirement programs, such as Old Age Security (OAS) and CPP, don’t provide enough income replacement for middle-income earners.

Workers should aim to replace up to 70% of their income in retirement to maintain a similar standard of living. The Liberals maintain the CPP replaces only about 25% of a worker’s income.

The province estimates just 34% of Ontario’s workforce is enrolled in a workplace pension program and a Scotiabank survey shows personal savings rates have fallen from 22.7% in 1982 to 4.6% today.

According to Statistics Canada data, as of last year there were 6,999 pension plans in Ontario covering 2.16 million workers (1.3 million in defined benefit plans; 419,332 in defined contribution options).

Business associations, including Canadian Manufacturers & Exporters (CME) and the Ontario Chamber of Commerce, are concerned about ORPP’s impact on companies, especially the manufacturing sector. It’s still finding its way out of the 2009 economic downturn, while coping with high energy costs, global competition and skills shortages.

“Manufacturing is incredibly important to Ontario and we should be doing everything we can to maintain that, not make it harder to compete, especially for small- and medium-sized firms that drive employment growth,” says Ian Howcroft, vice-president of CME Ontario.

Liam McGuinty, manager of policy and government relations at the Ontario Chamber of Commerce, agrees.

“There are certainly retirement savings challenges, but [ORPP] is an added cost for employers that puts the province at a competitive disadvantage,” he says.

The Canadian Federation of Independent Business (CFIB) says businesses would be hit with up to $1,643 per employee a year in new payroll taxes starting in 2017. In response, it launched a campaign to “Axe the Ontario Pension Plan.”

A 2014 CFIB survey indicates 86% of business owners oppose a mandatory provincial pension plan, and that 69% of those indicated they would have to freeze or cut salaries if one was implemented. Fifty-three per cent said they would eliminate jobs and limit future hiring.

Howcroft and McGuinty believe the government should be exploring other, more flexible options, some of which are already offered by employers. These include pooled registered pension plans and defined profit sharing plans.

“There are employers out there who are working with razor thin margins, but there are flexible options that work quite well,” says McGuinty.

Phase in
On Aug. 11, the Ontario government revealed a number of amendments to ORPP phase-in dates and expanded comparability rules for those required to participate in the program.

For companies with 500 or more employees without a pension plan, contributions will begin Jan. 1, 2017. The contribution rate for both employees and employers will be 0.8%, rising to 1.6% in 2018 before plateauing in 2019 at 1.9%.

Wave two is directed at medium-sized employers with 50 to 499 employees. Contributions will commence Jan. 1, 2018 at the rate of 0.8%, jumping to 1.6% in 2019 and 1.9% by 2020.

Finally, small employers of 50 or fewer workers will start contributions Jan. 1, 2019 at a rate of 0.8%, 1.6% in 2020 and maxing at 1.9% come 2021.

Ontario-based manufacturers should examine their options carefully and understand which ones limit ORPP’s impact on their operations. The only way manufacturers can avoid the plan now is under a Liberal or NDP federal government, both of which have pledged to make enhancements to the CPP, which the Harper government has so adamantly refused to do.