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November 13, 2013
Ontario may start its own pension plan

The Ontario government has signalled that it is prepared to launch its own provincial pension plan.

According to reports published in the Hamilton Spectator, the province is developing plans to introduce a supplementary pension plan that would allow it to enhance the retirement benefits of its middle class residents without getting mired in protracted inter-provincial negotiations to enhance the Canada Pension Plan (CPP.)

While details on contribution levels, enrolment requirements, pension pay-outs and portability are still to be revealed, the pension program could potentially be “massive,” reports suggest.  With more than 13 million residents and 45 per cent of Canada’s gross domestic product, a separate Ontario pension plan could easily rival the Canada Pension Plan in terms of funding and plan membership.

The key question in the Ontario pension plan proposal is whether the concept is real or a political bargaining tool.

Since 2010, the province has supported expanding the Canada Pension Plan’s income replacement ratio from the current level of 25 per cent of career average earnings to 35 per cent.  The benefit expansion would be supported by higher contribution levels.  Today, the maximum CPP pay-out at age 65 is $12,150.   Current contribution levels are 9.9 per cent of members’ yearly maximum pensionable earnings ($51,100 in 2013.)  The Ontario plan would enhance the CPP benefit to roughly $18,000 per year in return for a joint employer-employee contribution level of 12.1 per cent.

The Ontario scheme has received a cool reception from the federal government, which has tended to favour its pooled registered pension plan (PRPP) as a voluntary supplementary pension enhancement.  The PRPP is designed to allow self-employed individuals and those working for smaller companies to contribute to a national defined contribution plan administered through accredited financial institutions.  (See the December 2010 and January 2011 editions of the Coughlin Courier for background.)

Ontario’s original plan to enhance the CPP would require the agreement of two-thirds of the provinces representing two-thirds of the Canadian population.  In practical terms, developing a supplementary Ontario Pension Plan modelled loosely on the CPP may be easier to do than aligning so many competing political and provincial interests to support an enhanced CPP.  However, media reports say Ontario’s Premier, Kathleen Wynne, is meeting her Alberta, Manitoba and Prince Edward Island counter-parts to discuss CPP expansion.

She has repeatedly expressed concern about the lack of retirement savings among Ontario residents.

Will Ontario develop its own pension plan?   The first hints may be revealed in coming provincial finance ministers’ meetings and the 2014 first ministers meetings.  

Watch the Coughlin Courier for more information when it becomes available.

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