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January 29, 2014
Ontario alone!

CPP reform failure pressures Ontario to go it alone

The failure of federal and provincial finance ministers to approve the expansion of the Canada Pension Plan (CPP) may drive Ontario to launch its own provincial pension plan.

Accusing the federal government of deliberately delaying its proposal to expand CPP benefits, Ontario says it may now seek to develop its own pension rather than wait for the national pension plan to be enhanced.

The statement follows the failure of provincial and federal finance ministers to agree to the reform of the CPP in meetings held at Meech Lake this past December.

According to media reports, the federal government vetoed the idea of enriching the CPP while Ontario, Quebec, Manitoba, Newfoundland & Labrador, and Prince Edward Island favoured the concept.

The move by Ontario follows several months of warnings that Canada is heading for “a huge economic crisis” if the country doesn’t take action to improve retirement incomes.   According to Ontario Premier Kathleen Wynne, people are not saving enough for retirement.  Ultimately, that will result in a social and economic calamity unless action is taken to improve retirement incomes.

“People are not saving enough for retirement and if we let this go unchecked we’re going to face a huge economic crisis,” she told an audience of business representatives this past November.  “Governments have to ensure a reliable and responsible retirement income system, one that evolves and responds to the practical realities of the times.”

Since 2010, the province has endorsed expanding CPP payouts from the current level of 25 per cent of the career average earnings to 35 per cent.  It also favours increasing the joint employer-employee contribution from 9.9 per cent of pensionable earnings to 12.1 per cent.  If its proposals aren’t accepted, the province will introduce its own provincial pension plan modelled after the CPP, the Ontario government says.  (See the November 2013 of the Coughlin Courier for background.)

“We’re taking the lead…to make sure that we’re thinking ahead and making sure that everyone in this province is prepared for retirement,” Premier Wynne says.

The premier’s proposals have received a cool reception from the federal government with federal Finance Minister Jim Flaherty suggesting that now is not a good time to increase taxation levels to fund the national pension.

“It’s a payroll tax on employers and employees,” Mr. Flaherty says.  “I don’t think the idea is a bad one. I just think that the economy has to be able to afford it at an appropriate time.”

Mr. Flaherty says that he prefers a more targeted approach, focusing on the 25 per cent of Canadians who are not saving enough for retirement. The federal finance minister feels that with the country’s economy still recovering from the 2008-09 recession, payroll-based taxes like the CPP should be held in check until the economy strengthens.

“There’s no point in using a bazooka and blowing money all over the place, taking money from people and from employers in order to address a particular strata of society,” he said.  “One of the things I don’t believe in is governments making commitments far down the road.  That was the kind of proposal that was being brought forward.  We’ll study it some more, we’ll look at triggers.  So maybe two years from now; three years; five years; whatever.”

Mr. Flaherty’s response met with a strong reaction from Ontario Finance Minister Charles Sousa.

“The easy answer is: ‘Oh, dear. Times are tough, so let’s not deal with it,’” he told The Globe and Mail.  “That’s not leadership. Now is the time to start talking about it because it’s going to take a year, two years or more to implement.  Kicking the can down the road for another government to resolve, that’s not the answer.  By then, it’s too late.”

Mr. Sousa’s comments were supported by Quebec Finance Minister Nicolas Marceau, who stressed that it appeared only the federal government opposed the expansion of the Canada Pension Plan and its Quebec equivalent, the Quebec Pension Plan (QPP).

“In my view, the vast majority of the provinces were in favour of enhancement.  All the provinces were in favour of further work.  Despite the fact that there was unanimity, the federal government decided they wanted to stop future work,” he said.

Ontario’s finance minister says that Ontario is serious about implementing its own pension plan should negotiations to enhance the CPP fail.  If implemented, the Ontario plan would be mandatory with contributions from both employers and employees.  It would also feature a defined benefit at retirement, similar to the CPP.

However, the next steps will be crucial, Mr. Sousa concedes.

“We need to reconsider where we go from here,” he says.  “A made-in-Ontario solution may involve every province in Canada.”

In the meantime, the province still intends to introduce pooled retirement pension plans (PRPPs), the voluntary supplementary defined contribution pension plan favoured by the federal government and now legislated by Alberta, Saskatchewan and Quebec.  However, PRPPs aren’t sufficient to ensure the retirement security of the aging population, Mr. Sousa says.

“I’m open to discussion.” Mr. Sousa says. “But, I am also open to a made-in-Ontario solution that enables us to offset the vacancies of the federal plan.”

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