Evelyn Jacks: Will Addition of Mandatory Provincial Pension Plans Help?

Details for a new Ontario Retirement Pension Plan (ORPP) were included in the May 1 Ontario budget and have become an election issue there. Some disagree that the plan is necessary; others are concerned about the immediate economic costs.

The goal of the proposed ORPP is to replace 15% of pre-retirement income. Examples in the budget documents indicate an actual rate of 14.24% of the insurable earnings if contributions are made for 40 years. Structurally, the plan would mirror the federal Canada Pension Plan in that it would be mandatory for all employers and their employees in Ontario, except for those who currently belong to company pension plan deemed to be adequate. The budget proposed that the contributory rate be 1.9% of contributory earnings from the employee and a matching 1.9% from the employer, based on maximum contributory earnings of $90,000 annually. These thresholds would increase annually consistent with CPP increases. It is unclear what the level of any low income exemption might be.

Jack Mintz, head of the School of Public Policy at the University of Calgary and who has twice been a guest speaker at the Distinguished Advisor Conference, prefers the Pooled Retirement Pension Plan regime over the Ontario Retirement Pension Plan (the Ontario government also announced its’ intention to introduce legislation in the fall of 2014 for Pooled Retirement Pension Plans largely consistent with the framework introduced federally and previously adopted by various provinces, but with the following features), and questions whether the ORPP is the right strategy for the times.¹

Dr. Mintz notes “Studies by McKinsey and Statistics Canada, which are the best done, show that about 80% of Canadians have more than adequate retirement income. In fact recent Statistics Canada work suggests over-saving, which some behavioural economists have attributed to excess of precaution over risk. . . For about 80% of the population, the mandatory plan will not increase saving but reduce investment in other assets. With higher employer contributions, the plan will certainly have an impact on labour markets.”   Opposition parties agree that this is not the right time to introduce this new “tax” burden on business, which could dampen employment or worse cause some layoffs.²

This commentary is interesting because it speaks to both to the positive preparedness of a majority of today’s pre-retirees and required precaution in planning for high risk groups, including singles and the under-employed,  and perhaps most important, the business community which is expected to propel Canada’s economic growth. 

It’s Your Money. Your Life. Retirement income planning can bring peace of mind for all stakeholders involved. It’s been our experience in teaching the subject over the last decade that the most effective retirement income planning can be significantly enhanced with tax planning. If you are unclear about your own preparedness, or that of your clients, post-tax season is a good time to review the strategy. We look forward to discussing these issues in depth at the upcoming one-day Distinguished Advisor Workshops to be held May 21–June 3 in Winnipeg, Calgary, Vancouver and Toronto, and Halifax.

Evelyn Jacks is president of Knowledge Bureau and author of 51 books on tax and personal wealth management. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of the 2014 three day think tank in Horseshoe Bay, Texas Nov 9-12 will be “Think BIG: Find the Sweet Spots in Wealth Management”  Follow Evelyn on Twitter at @EvelynJacks.

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¹ Financial Post: Jack Mintz: Ontario pension unnecessary and expensive. Published May 1, 2014
² CBC.ca: Ontario's Retirement Pension Plan: how would it work? Posted May 6, 2014.