Ontario retirement pension draws mixed reviews

Ontarios new proposed mandatory pension plan is being praised by labour and pension experts, but criticized by business groups that worry the new payroll tax will be a job killer.

Anybody that moves a budget that incorporates a potential increase in retirement income for 70 per cent of Ontarians, thats a pretty progressive and bold move, said Ontario Federation of Labour president Sid Ryan.

This is the first time in quite a long time that we have had a serious attempt to deal with the retirement income crisis, said Murray Gold, managing partner at Koskie Minsky law firm, who specializes in pensions. At the end of the day, it provides somebody with a secure and predictable benefit.

Susan Eng, vice-president of advocacy for CARP, which lobbies on behalf of retirees, called it a very good plan, especially because it mirrors the Canada Pension Plan.

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Its a major first step, she said, adding it wont benefit her members, but their children and grandchildren.

All businesses in Ontario that currently do not provide a company pension will be required to join the Ontario Retirement Pension Plan, which is modelled after the CPP.

The new Ontario plan is aimed at the three million-plus workers who currently have no company plan, but it will not apply to the 700,000 Ontarians who are self-employed.

Dan Kelly, president of the Canadian Federation of Independent Business, says the new pension plan will hurt small- and medium-sized businesses that simply cannot afford to make the employer contributions.

This budget will kill, not create, jobs, Kelly said. Many Canadians are already saving enough for retirement so this is a blunt instrument, adding a new tax on absolutely everybody, not just targeting those who may be short. Thats a big worry for small business.

Workers who are covered under a company pension plan will be exempt from participating in the new plan, if it is deemed comparable to the Ontario plan. However, the provincial government has not yet set the criteria or benchmarks to determine what will be comparable.

In addition, the government has not pegged what would be retirement age, and whether there would be any exemptions for older Ontarians nearing the end of their working lives when this new plan comes into effect in 2017.

The Liberals would prefer to see an enhanced CPP, which other provinces have also pushed for, but the federal government has balked at the idea, so Ontario is going it alone. Other provinces, including Manitoba and PEI, have expressed interested in joining.

Under CPP, the maximum payout is about $12,500 a year; on average, Ontarians only get $6,800 a year.

The Ontario plan would be publicly administered at arms-length from government, with the goal of keeping management fees low, as with other public pension plans. It is estimated that the annual contributions would be about $3.5 billion.

CFIBs Kelly added that given the e-health and ORNGE scandals, I dont think too many Ontarians would be confident that the dollars that are entrusted to the current government would be wisely invested.

Michael Nobrega, former president and CEO of the OMERS pension plan, was named Thursday as chair of the implementation committee.

Under the proposal, a worker earning $45,000 a year would contribute about $788 annually to the Ontario plan, matched by the employer over a 40-year career. In retirement, that would translate into a maximum annual benefit of $6,410. Combined with the CPP, it would work out to about $17,090 annually, replacing about 40 per cent of pre-retirement income.

For workers earning $70,000 a year, it would mean a $1,263 annual contribution, matched by employers, resulting in a $9,970 annual payout. When combined with CPP it would bring the payment to $22,430 a year, replacing 34 per cent of pre-retirement income.

At the same time, Ontario will also bring in enabling legislation to permit Pooled Registered Pension Plans, favoured by some business groups due to their voluntary provisions.

Under Ontarios PRPP framework, employers would be able to choose whether to offer their employees a pooled plan and whether to contribute. However, for Ontarios purposes, it would likely be considered like an RRSP, an individual retirement savings plan, and not a company pension plan.

© The Toronto Star