For the last three years Ottawa and the provinces have been debating ways to enhance retirement savings.
RANDY RISLING / TORONTO STAR
Ontario Finance Minister Charles Sousa will likely outline a framework for a provincial pension plan in next month’s Economic Statement.
For the last three years federal and provincial governments have been debating ways more people can enhance their retirement savings by participating in pension plans. But in the run up to the annual finance ministers meeting in December, it appears that residents of Ontario are no further ahead.
But Kathleen Wynne’s minority Liberal government may be about to introduce a “Made in Ontario” supplementary pension plan if Ottawa and other provinces don’t agree to modest increases to CPP contributions phased in over time.
Ontario always preferred a CPP enhancement, but this was a no go with Conservative governments because the business community was opposed to payroll tax increases. Instead, all the provinces signed on to the new “pooled registered pension plans” announced by Jim Flaherty in December 2010.
A PRPP is a defined contribution pension plan administered by a financial institution that allows people from unrelated employers and those without a workplace pension plan to contribute.
The idea is that the pooling of assets leads to lower overall costs, making PRPPs more attractive to small employers than existing defined contribution plans and group registered retirement savings plans.
Currently, 65 per cent of Ontario workers are not members of an employer-sponsored pension plan. The Ontario government committed to introducing PRPPs in the March 2013 budget, but so far PRPPs are only available to federally-regulated employees.
A recent commentary from the C.D. Howe Institute highlights why this new retirement savings vehicle is unlikely to significantly enhance pension coverage even if legislation enabling PRPPs is passed in its current form.
In the commentary, Barry Gros, a vice president at human resource consulting firm Aon Hewitt, says the problem with the federal PRPP model is that it is voluntary. Employees can opt out and there are no mandatory contribution levels for employers or employees.
Gros says Ontario should force employers over a certain size without a retirement savings plan to offer a PRPP. For example, Quebec’s proposed version of the PRPPs requires implementation in workplaces with at least five employees.
Mandatory contributions are also necessary to accumulate a realistic amount of retirement cash in the plan. Employers often match employee contributions. Unless employers and employees contribute at least 3 per cent of earnings, participating in a PRPP is not worth it, Gros says.
The commentary notes that many middle and lower-income Canadians may not want to save for retirement in tax-deferred accounts like PRPPs or RRSPs. This is because they will pay taxes and may face the clawback of government benefits when they withdraw the money.
Saskatchewan and Alberta have passed PRPP legislation based on the federal model, but the details of how it would work have not yet been released. Quebec has tabled a bill, while British Columbia’s didn’t make it to the legislature before the spring election.
In the run up to the December 2013 meeting of finance ministers, P.E.I.’s Wes Sheridan is leading the latest charge for CPP amendments that would raise the maximum insurable earnings cut-off from $51,000 to $102,000 to generate higher pensions at retirement.