Rethink Ontario’s unnecessary and counterproductive pension plan
In December, Canada’s finance ministers decided to at least temporarily put the brakes on a proposed expansion of the Canada Pension Plan (CPP). This was a welcome development, since expanding the CPP is a solution in search of a problem that would have done little or nothing to improve retirement security for most Canadians.
Unfortunately, in the weeks since, senior officials in Ontario’s government have stated they plan to push ahead with the creation of an Ontario-specific mandatory pension plan—the ORPP. This is bad news for Ontarians, since the proposed ORPP will have many of the same problems as the misguided plan for expanding CPP. Ontario should abandon its unnecessary plan, which would require up to $3,287 more in forced employee and employer contributions to the government plan for individual working Ontarians (or up to $6,574 for a working couple).
The Ontario government claims the ORPP is necessary because we aren’t saving enough for retirement, but a number of recent studies show there is no retirement savings crisis in Canada.
In 2009, Canada’s finance ministers created a research working group to explore whether Canadians were adequately prepared for retirement. The group’s summary report found “Overall, the Canadian retirement income system is performing well, providing Canadians with an adequate standard of living upon retirement.”
Similarly, an examination by Philip Cross, former chief economic analyst for Statistics Canada, found that proponents of an expanded CPP “stoke fears of a looming crisis by claiming that Canadians aren’t saving enough for retirement. These claims blatantly ignore the ample resources available to Canadians when they retire.”
Meanwhile, leading pension expert Malcolm Hamilton found the assumptions underpinning claims that “few middle-income Canadians have sufficient retirement savings” are simply incorrect.
That said, there are some problem areas in Canada’s existing retirement income system, mainly affecting single seniors living alone (often widows) with minimal work history. But because the ORPP would be a contribution-based program, it would do virtually nothing to help this group.
If we’re truly interested in helping seniors in need, the appropriate response is targeted policy aimed at helping this group, not a crude instrument like the ORPP that will affect individuals who are already saving enough.
Moreover, the mere fact that some Ontarians may be under-saving for retirement is not a good reason to force everybody to save more when they may need the money for other objectives such as buying a house, supporting children, or simply keeping up with regular bills. Taking thousands of dollars from the pockets of Ontarians will exacerbate the financial stress many face.
And it’s not even clear the ORPP would boost overall retirement savings. As research led by University of Montreal economics professor François Vaillancourt shows, past expansion of forced government retirement savings in Canada resulted in reduced private savings by Canadian households. Indeed, when governments increased mandatory savings through CPP contributions during the 1990s and early 2000s, Canadian households reduced other forms of voluntary savings such as RRSPs. The end result was not a boost in savings but rather a reallocation from flexible, privately held savings to mandatory government savings.
It’s worth repeating; the ORPP is a solution in search of a problem. Most Ontarians are adequately prepared for retirement, and efforts to make them save more through mandatory government schemes will likely result in reduced private savings. Canada’s finance ministers were right to put the brakes on the expanded CPP. Ontario should now follow suit and abandon the proposed ORPP.
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