Friday, June 3, 2016

ORPP an Impediment to Enhanced CPP?

The Canadian Press reports, Canada Pension Plan reform: Ontario's new pension plan complicates talks:
Federal sources say Canada's most populous province has become Ottawa's main challenge in work to gain the required provincial support to expand the Canada Pension Plan.

Ontario's position in the ongoing talks is that it wants reforms to the Canada Pension Program to dovetail with the provincial pension program Ontario has vowed to create.

The province's finance minister says there needs to be "some degree of substantial benefit" from a revamped national pension plan through higher benefits for retirees.

But replacing more of a retiree's income through the CPP would require increases in premiums paid by employees and employers.

And if the premiums are too high, that reform would likely alienate the provincial governments in British Columbia and Saskatchewan, both of which don't want to see rates rise over concerns about potentially negative ripple effects on small businesses and low-wage earners — further complicating talks about expanding CPP.

Ontario Finance Minister Charles Sousa said he plans to use the Ontario program as the starting point for negotiations to push for timely amendments to the national program. But he added that the province isn't intractable in its position.

"I'm not suggesting that we're going to obstruct CPP enhancement because we're introducing (the Ontario Retirement Pension Plan). We're using ORPP now as a means to have something substantive on the table for other provinces to review and we recognize that other provinces won't go to that extent. So we will work to find a compromise," Sousa said in an interview.

'Ontario's willing to play'

Federal, provincial and territorial finance ministers will meet the third week of June in Vancouver where CPP reform will be a key part of the agenda.

Federal Finance Minister Bill Morneau has said he wants to see a deal for an expanded CPP completed by the end of the calendar year.

Sousa wants to see early action. He said the talks will be for naught if a majority of provinces don't signal their backing for immediate changes to the pension plan at the June meeting.

"Timing is critical and, frankly, it does put everybody on notice that Ontario will work with the federal government, we are working with the federal government, and other provinces to recognize that we have an opportunity to make a deal here. So Ontario's willing to play," he said.

"What we don't want is to go back and have this: 'We'll do CPP enhancement at some time in the future at some amount without real determination.' I want us to have details, I want us to discuss the parameters of what that enhancement will be. And we are prepared to move forward with CPP enhancement in a form that is close to what ORPP is."

Ontario has proposed to almost double the income replacement rate by supplementing CPP benefits that would lead to annual payments of about $25,000 — but which would also require a increase in premiums. The province also wants to see coverage to Ontarians higher up on the income scale by raising the year's maximum pensionable earnings amount, known as the YMPE.

"That's not going to palatable to all provinces. So Ontario is willing to discuss that and have a meeting of the minds as to what amount should be preferable," Sousa said.

First overhaul in 20 years

Since December when the federal and provincial finance ministers last met, political and bureaucratic conversations have been intensifying behind the scenes to garner support for an expanded pension plan. But coming to a consensus has proven difficult.

Morneau spokesman Dan Lauzon said Ontario has always "acted in good faith" from the start of talks around CPP reforms.

"The fact that they argue passionately for the people of Ontario only adds to the discussions both behind the scenes and around the ministers' table," Lauzon said.

"We look forward to a collegial and lively discussion at the upcoming finance ministers' meeting in Vancouver, as we work together to advance retirement security of all Canadians. Ontario's voice is crucial to the success of that meeting."

The finance ministers are scheduled to meet again this coming December where Morneau expects a deal to be finalized.

Changes to the national pension plan require the support of at least seven provinces holding two-thirds the population of the country — a high bar that makes it mathematically difficult to make changes without buy-in from Ontario.

"Were that to happen, then we would not get a national CPP reform," said former Bank of Canada governor David Dodge.

It would be the first major CPP overhaul in almost 20 years after the provinces and federal government agreed to increase premiums in 1997.

Most provinces were ready to agree to an expansion of CPP in 2013. But the previous Conservative government balked at the move, which led the Ontario Liberals to head down the path of their own provincial pension plan. Quebec also has its own provincial pension plan.
First, Bernard Dussault, Canada's former Chief Actuary, notes the following:
Contrary to what David Dodge stated, there could be a CPP expansion if at least seven provinces covering at least 2/3 of the Canadian population would agree with an expansion “similar” to the ORPP, because the CPP Act clearly says that any province may opt out of CPP provided it implements a “similar” plan of its own.
In my opinion, Ontario is way ahead of everyone else when it comes to the issue of enhancing the CPP. As far as the ORPP, far from obstructing the talks, it lays the blueprint for everyone else to understand why it's crucial to move ahead and enhance the CPP, bolstering the country's retirement system and economy.

In fact, the Government of Ontario just passed the Ontario Retirement Pension Plan Act:
Ontario is expanding pension coverage to over four million workers without an adequate workplace pension plan.

Today, the province passed the Ontario Retirement Pension Plan Act (Strengthening Retirement Security for Ontarians), 2016. The Ontario Retirement Pension Plan (ORPP) will bring financial security and drive economic growth for generations to come, by providing Ontario workers with a predictable stream of income in retirement, paid for life. The ORPP will also offer a survivor benefit for all plan members.

Along with regulations expected this summer, the legislation gives employers and employees the information they need to prepare for the launch of the ORPP. This is a crucial step forward in fulfilling the government's commitment that every eligible employee is part of the ORPP or a comparable workplace pension plan by 2020.

Strengthening the retirement income system is critical to the future prosperity of the province. Studies show that many of today's workers are not saving enough to maintain their standard of living in retirement. Pension coverage is also low for many Ontarians, with only one in four younger workers -- aged 25 to 34 -- participating in a workplace pension plan.

Building a secure retirement savings plan is part of the government's economic plan to build Ontario up and deliver on its number-one priority to grow the economy and create jobs. The four-part plan includes investing in talents and skills, including helping more people get and create the jobs of the future by expanding access to high-quality college and university education. The plan is also making the largest investment in public infrastructure in Ontario's history and investing in a low-carbon economy driven by innovative, high-growth, export-oriented business.

Quick Facts
  • The ORPP will offer a predictable, reliable and inflation-indexed stream of income in retirement, paid for life, by providing a pension of up to 15 per cent of an individual’s pre-retirement income. Employees and employers would contribute an equal amount, capped at 1.9 per cent each on an employee’s annual earnings up to $90,000.
  • A cost-benefit analysis conducted by the Conference Board of Canada found that over the long-term, the ORPP will add billions to Ontario’s economy.
  • Since 2014, the government has consulted extensively on the design of the ORPP with the business community, labour, academia, non-profits and Ontario workers, including holding public consultations in more than 10 communities across the province. Over 1000 responses were also submitted online and by mail.
  • Ontario looks forward to participating in the Federal-Provincial-Territorial Finance Ministers Meeting on June 20 in Vancouver. Ontario supports CPP enhancement. Ontario is open to exploring a range of potential CPP enhancements for a national solution to strengthening retirement security as long as it is targeted to those who need it most and provides substantial earnings replacement benefits in retirement
Background Information

Details of Ontario Retirement Pension Plan Act, 2016

Additional Resources

Ontario Retirement Pension Plan

Quotes (click on image)

The passage of the Ontario Retirement Pension Plan Act right before the meeting on enhancing the CPP isn't meant to be provocative but rather informative. It also represents a hedge for Ontario in case other provinces balk at enhancing the CPP, it is ready to go it alone.

Ontario is basically sending a clear message to other provinces: "Hey, we have a fundamentally divergent view on bolstering the country's retirement system and economy. We want to build on the success of Ontario's great defined-benefit plans and provide our citizens with an enhanced retirement they can count on no matter what happens in schizoid public markets. More importantly, we fundamentally believe that enhancing the CPP or introducing the ORPP should the enhanced CPP option fail, will bolster the economy over the long run. And we're basing this on a cost-benefit analysis conducted by the Conference Board of Canada, not some flimsy report by the grossly biased Fraser Institute."

I think this is a stroke of genius on Ontario's part. Why? imagine if all the other provinces balk at enhancing the CPP and Ontario moves ahead with ORPP and 20 years from now comes out way ahead of everyone else not just in terms of retirement security but also in terms of its economy?

What are the other provinces going to say then? "Well, back in 2016 we had a golden opportunity to all embark on enhancing the CPP but we chickened out because we were listening to flimsy arguments from think tanks like the Fraser Institute and special interest groups like the Canadian Federation of Independent Business (CFIB) which doesn't understand the first thing about why enhancing the CPP is in its members' best interests."

How sad and tragic that would be. The naysayers will argue against me and claim that Ontario will be worse off 20 years from now if it goes it alone but I guarantee you it will be far ahead of everyone else if all the provinces don't get on board and enhance the CPP (and QPP in Quebec) once and for all.

Canadians need to get informed on why enhancing the CPP will be one of the smartest social and economic policies of our time. I highly recommend you read my comment on why Canadians are getting a great bang for their CPP buck and my last comment on why expanding the CPP will help everyone, including our most vulnerable seniors.

Enhancing the CPP isn't simple but neither was passing a national health care act which is the cornerstone of our health care system and a huge part of the Canadian identity. I've said it before and I'll say it again, a vibrant democracy ensures free healthcare, free education and a solid retirement system where people can retire in dignity and security. These are the three pillars of any vibrant democracy.

Is it going to be perfect? Of course not. Are there going to be snags along the way? You bet there are. But the key here is to think what is in the best interests of our citizens and the economy over the very long run and not to get embroiled in cyclical issues of the price of oil and where the economy is headed in the next couple of years.

Personally, I'm very worried about the Canadian and global economy over the next few years but that in itself doesn't hinder my views on bolstering our retirement system. In fact, it makes me more resolute and I believe it would be a national crime if the provinces and federal government squandered this golden opportunity to enhance the CPP once and for all.

Below, a clip from the Canadian Museum of History on the history of our Canada's health care system. The path of universal health care was rough at times but it has become an entrenched part of the Canadian identity.

I also embedded a clip on Tommy Douglas, the father of medicare, and a National Film Board clip on the fight for medicare in Saskatchewan. Back then, Saskatchewan went it alone on medicare before all the other provinces jumped on board. Will Ontario go it alone on enhancing its retirement system?

I hope not and hope one day our retirement system will be the envy of the world but in order for this to happen, our politicians need to take concrete actions now. I'd love to see an announcement on enhanced CPP before Canada Day 2016. Wouldn't that be something, eh?

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