Ontario, Go It Alone!!!
Ontario is vowing to press ahead with its own mandatory retirement pension – one that other provinces are signalling they could sign on to – after Ottawa dismissed reform of the Canada Pension Plan in the near term.CBC News also reports, Canada Pension Plan reform stalls without Ottawa's support:
The Ontario government could soon find allies among other provinces who also emerged frustrated by Ottawa’s hard line at a summit of federal and provincial finance ministers at Meech Lake, Que., on Monday.
Several ministers said that all provinces were on board to support a final statement that would commit to more study around increases to CPP contributions and benefits, but Finance Minister Jim Flaherty and minister of state for finance Kevin Sorenson bluntly declared Monday that reform must wait until the economy is stronger and that “now is not a time for CPP payroll tax increases.”
Charles Sousa, Ontario Finance Minister, said his province is currently the chair of the Council of the Federation, the collective body of Canada’s provinces and territories, and will be using that venue to see what steps could be taken next. “We’re looking at a made-in-Ontario solution as a result,” he said, adding that details have not been determined. “I’m going to reassess now what we’re doing.”
Ontario has yet to move beyond the preliminary stages, and has yet to decide whether to base its plan on the CPP, or some other model. But it faces significant challenges, including the competitive threat of payroll taxes rising only in Ontario. A source in the Liberal government acknowledged that concern, but said Ottawa’s experience in the 1990s demonstrates that increases need not deflate economic growth.
Advocates for CPP expansion have warned about provincial substitutes, saying it could be difficult to obtain benefits after moving to other jurisdictions.
The problem confronting Ontario and the rest of the country is how to get Canadians, particularly middle-class earners, saving more for retirement. Existing programs funded directly by the federal government – including Old Age Security and the Guaranteed Income Supplement – are seen as generous enough for low-income Canadians to maintain their existing standard of living in retirement.
As a result, the discussion among finance ministers has focused on proposals that would affect only Canadians earning $25,000 or more. Some have taken issue with that aspect, arguing that all Canadians should benefit from an enhanced CPP. The labour movement argues the exemption for those under $25,000 is meant to appease small business owners, who have spoken out against higher CPP premiums.
Mr. Sousa said the federal government is the main opponent of reforming the system. “I’m very disappointed that they used stall tactics to ensure that CPP enhancement wasn’t even considered at this time,” a visibly angry Mr. Sousa told reporters, saying his province was determined to build its own plan. “The only one that was not in favour was the federal government, and that’s unfortunate.”
The meeting marks a significant policy shift by Mr. Flaherty, who until Monday had never shut the door on CPP expansion – though he has been lukewarm to the idea since he tried and failed to persuade the provinces to support a “modest” enhancement of the CPP in 2010. At that time, Alberta and Quebec were not supportive and Ottawa decided to refocus its energies on Pooled Registered Pension Plans, which would involve voluntary contributions rather than the mandatory payments employees and employers make through CPP premiums.
Neither Mr. Flaherty or Mr. Sorenson would say when CPP reform would be considered. “I think we wait and see. We do what we’re doing. We focus on jobs, growth, prosperity,” Mr. Flaherty said. “And then get the unemployment rate lower and get more people trained for the jobs that are available in Canada and then watch the economy grow, and when it does, then we can have a look.”
In the meantime, other provinces are indicating they could support Ontario’s move. “We need to reconsider where we go from here,” said Prince Edward Island Finance Minister Wes Sheridan, who had proposed a CPP increase that would start in 2018. “A made-in-Ontario solution may involve every province of Canada.”
Still, it’s not clear whether other provinces would take part in Ontario pension plan, and how it would be administered.
B.C. Finance Minister Mike de Jong said he’s willing to take a look at Ontario’s proposal, but he is planning to bring in legislation in the spring that would offer British Columbians a voluntary pension option. The B.C. government introduced the Pooled Registered Pension Plans Act last spring but the proposed legislation was abandoned because of the provincial election call. Mr. de Jong said in an interview he intends to re-introduce the bill in the coming spring session. ‘We’ll look at what Ontario proposes, but for our part we intend to proceed with the legislation,” he said.
Policy experts in Ontario’s Finance Ministry have been working on different possible models for an Ontario pension plan, but the province is not leaning toward any particular one, a government source said. Mr. Sousa will now review the different options in greater detail to decide which one to move forward with. One option is to create a new plan modelled on CPP. Another is to administer the Ontario plan through a pre-existing public pension fund, such as the one of the various funds provincial and municipal employees already pay into, the source said. The source also pointed to the United Kingdom’s National Employment Savings Trust, which was set up by the government but run as an independent not-for-profit organization, as another possible model.
There is no timeline on exactly when Mr. Sousa will roll out Ontario’s new pension plan, and the timing is likely to depend on which model he ultimately chooses.
Current premiums are 9.9 per cent of pay, split evenly between the employee and the employer, on income between $3,500 and $51,100. The current average CPP payment to retirees is $7,234.32 a year and the maximum payment is $12,150.
Ontario is ready to go ahead with pension reform on its own after Ottawa blocked a consensus on Canada Pension Plan reform.
At a news conference following a meeting with his provincial counterparts in Meech Lake, Que., federal Finance Minister Jim Flaherty said now is not the time to move on the pension issue. Flaherty said there was a "frank discussion" about CPP changes, but he believes the economy is too fragile.
"We believe that CPP payroll taxes can hurt the economy and distract from what truly matters for all Canadians — keeping our economy strong and our finances in a strong fiscal footing is the plan of this government," Flaherty said.
"Now is the time for fiscal discipline. And that is why all governments must focus on encouraging job growth and getting their fiscal houses in order. Now is not a time for CPP payroll tax increases," Flaherty said.
Two hours later, Ontario Finance Minister Charles Sousa issued a press release saying the province would implement a made-in-Ontario solution to the pension conundrum.
"Given today's unfortunate stall tactic by the federal government, we will move forward to implement a made-in-Ontario alternative to protect Ontario workers in their retirement," Sousa said.
He laid blame for the lack of consensus squarely at Flaherty's door, saying the federal minister was stalling what could have been an agreement among the provinces.
"Doing nothing is not a solution to this problem and will not give Ontarians the security they need to retire. We have to act and that's what Ontario will do," Sousa said.
While several provincial finance ministers have been pushing for an enhancement to the CPP, so there will be a richer benefit available to the generation retiring 30 years down the road, Flaherty has been reluctant to implement reforms.
He said he could not predict when the economy might be strong enough to support a premium increase and said Ottawa does not plan more discussion on the pensions issue.
P.E.I. Finance Minister Wes Sheridan put a proposal on the table that would increase CPP contribution rates, by both employers and employees. Ontario and Prince Edward Island have been leading the charge to boost CPP contributions.
"Anyone earning under $50,000 at the top end would increase their contribution by 17 per cent. What this would do — someone earning $40,000 a year would pay about $465 extra — less than a cup of coffee a day. And that would return them about $2,250 more in their retirement years," he told CBC's The Current.
He said his plan has been "misconstrued" as doubling pension premiums. In fact, only people earning in the $100,000 range would see their premiums doubled.
The CPP enhancement is necessary because people earning between $35,000 and $100,000 are not saving for their own retirements, Sheridan said.
Younger workers would benefit
The younger generation is facing low incomes, high debt and no private pension plan and will not have enough to live on unless CPP is improved. Current benefits pay just over $12,000 a year and even with Old Age Security and the Guaranteed Income Supplement, the income is just $16,000.
All the finance ministers agree there is a shortfall, Sheridan said.
"When we first met in 2010, we realized that Canadians were not saving, and it’s the middle class that we have to point out as being the most guilty," he said.
Flaherty said any solution to the problem would have to target just the 23 per cent of Canadians who are thought to be in the $35,000 to $100,000 bracket and don't have savings.
Nova Scotia, Newfoundland and Labrador, Manitoba and Quebec also appeared to favour some kind of CPP enhancement measure.
Sousa said Ontario believes a change is urgently needed now, while most of the baby boom generation is still paying into CPP and there is time for that investment to grow.
"Over 50 per cent of Ontarians do not have a pension plan. They're going to be fully reliant on CPP and OAS to provide for them and at $12,000 a year, that is insufficient," he told CBC News ahead of the meeting.
In fact, just 34 per cent of all Canadians have a private workplace pension and one-third of Canadians have no savings at all.
"Ontario's always stated our priority is to enhance CPP. It's a well-run system, it's well-managed, it's least expensive and it's the most appropriate means by which to proceed," Sousa said on CBC's Power and Politics.
He gave no details of what Ontario plans, but made it clear that CPP reform was part of a wide-ranging initiative around pensions.
"We've already introduced voluntary pooled plans, we're going to continue addressing defined contribution plans for private investors and private employees; we're also looking at defined benefit plans in the public sector and reviewing all those initiatives," Sousa said.
A visibly angry Sousa said he learned at today's meeting that Ontario would be "shortchanged" on its transfer payments from the federal government, getting $640 million less than expected.
"We're the only government to have actually cut spending year-over-year last year. So we're getting penalized … for doing good work, and we want to make certain that we have fairness to Ontario as well," Sousa said.
Flaherty prefers pooled savings plans
Flaherty has said he prefers pooled registered pension plans (PRPP), in which employees contribute to a pooled fund that is invested for long-term returns. He has said PRPPs would be a solution to encourage savings, as they would have lower fees than RRSPs.
However, they would not be mandatory, nor would there be any mechanism to prevent employees who get into financial difficulty from removing their savings from a PRPP.
Saskatchewan and Quebec are among the provinces that have passed laws putting PRPPs in place.
Sheridan sees the PRPP proposal as a good one, but says CPP reform is a better option. He suggests using several vehicles to improve pensions.
"I don't call it a tax on employers. It's an employee benefit. That's a very big difference," he said.
Bernard Dussault, former chief actuary of the CPP, also dismissed the idea that a CPP enhancement would kill jobs.
"The CPP, when it was implemented in 1966, it was subject to an immediate increase of 3.6 per cent deducted from payroll and salary. That did not affect the economy," he said.
"From 1987 to 2003, the contribution rate was gradually increased from 3.6 per cent to 9.9 per cent and there has been no slowdown in the economy. To the contrary, the employment rate increased during those years."
'Ballot box issue' for seniorsI think it's now clear that Ontario needs to go it alone on pension reform and other provinces will follow its lead. Jim Flaherty, Canada's Minister of Finance, did exactly what I thought he would do. He shamelessly pandered to Canada's powerful financial services industry.
Susan Eng, vice-president of advocacy for the Canadian Association of Retired Persons, said the 300,000 members of CARP see pension reform as an urgent issue and want the finance ministers to continue working toward a consensus.
"They have to agree to increase the CPP, it’s that simple. It isn’t the only option to help people save for their retirement, but is the one that’s on the table and a very good one," she said.
“All of the arguments are in, we know what the details are. It’s now come down to a political choice. For our membership … it’s a ballot box issue. It matters that much to them.”
But banking on PRPPs isn't good pension or economic policy and Flaherty and Harper know this. They both read my blog, they know Canada's pension problem and know that I side with
And
Ontario Minister of Finance Charles Sousa slams federal Finance Minister Jim Flaherty and the federal government over their announcement Monday that the Canada Pension Plan won't be improved, saying he was "very disappointed" that the feds used "stall tactics" to ensure no improvements would be coming to CPP. Don't get mad Minister Sousa, get even, go it alone!!!