December 7, 2012 – Implementing Pooled Retirement Pension Plans (PRPPs) and taking on “generous” public pensions plans are the central planks in the Ontario Progressive Conservatives new discussion paper on pension reform. Increasing the retirement age, averaging earnings over alonger period of time, and reducing the percentage of earnings used to calculate thevalue of the pension are also up for discussion.
According to the report, titled Paths to Prosperity, retirement security in Ontario is an all or nothing proposition, adding that “our pension system should be fair, not gold-plated for some and non-existent for others.”
The report touts the advantages of PRPPs to small and medium sized businesses in particular, who would have access to a large-scale, lower-cost retirement saving options for their employees.
The report doesn’t detail the PC plan for PRPPs, which is important since it is now provincial governments that will ultimately choose the design and fate of PRPSs. With an election looming, it is clear that the Ontario Conservatives favour PRPPs over CPP enhancement. According the report, the current Liberal Government has wasted time pursuing CPP expansion while holding off on PRPPs.
“The current provincial government has been in no hurry to act. It prefers expensive enhancements to the current CPP scheme. That is one partial approach,” the report adds, “but the federal government is not offering CPP changes and employers cannot afford more payroll tax increases.”
CARP’s position on PRPPs is well known. As currently designed, PRPPs fall short of the core goal of providing a universally accessible and affordable retirement savings vehicle that would help provide an adequate retirement income. PRPPs can be made to help Canadians better save for their own retirement, but only if current design problems are corrected before being offered. In particular, CARP has advocated that PRPPs implemented by provinces should include fee caps, defined or target benefits, and mandatory employer contributions. PRPPs may be an improvement on status quo, but simply giving Ontarians one more place to put their money, without safeguards, is not likely to improve retirement savings. As it stands, most Canadianschoose not to invest in RRSPs because of the risks, fees and lack of predictable returns. PRPPs hold the promise of lower fees and pooled risks but without clear targeted returns, they are not a significant improvement over RRSPs.
Taking on Public Pensions
A number of pension plans for employees in the public sector are underfunded. According to the report, for example, the Ontario Teachers’ Pension Plan faces an unfunded liability of $9.6 billion. The PC plan to correct chronic underfunding of pension plans is threefold:
1) collect and publish full financial information about the liabilities of the province and its taxpayers for future pension payments. Make this information clear in every provincial budget.
2) Move to a 50/50 split in costs for all government worker pension contributions, where it doesn’t already exist.
3) Phase in over time a higher minimum retirement age (or ages) for government employees.
Cleaning up public pensions is necessary, but in any attempt to put the pension house in order, governments and citizens should be wary of a race to the bottom. The goal should be to raise retirement prospects rather than pitting Canadians with pensions against Canadians without pensions.
Raising the Retirement Age
In addition to implementing PRPPs and fixing public pensions, Paths to Prosperity opens the discussion on raising the retirement age for public employees, averaging earnings over a longer period of time, and reducing the percentage of earnings used to calculate the value of the pension are also up for discussion. Should these provisions become reality, it may take longer for Ontarians – especially in the public sector – to retire and when they do, their pensions may be smaller than they are for current retirees.