The proposed Ontario Registered Pension Plan would not likely do much good for the baby boom generation, but it would be a big benefit for people who are now in their 20s and 30s.
The plan, proposed in Ontario's budget May 1 and never publicly debated because of the province's election call, is nonetheless getting attention from across the country because of its potential to fill a significant gap in pension coverage.
It targets the three million Ontarians of working age who do not have an employer-sponsored pension — many of whom are younger workers.
"The people who should be most interested are the people who are 30 years old, not that they're thinking about retirement," says Jim Keohane, president and CEO of the Healthcare of Ontario Pension Plan and a member of the technical advisory group that worked with the province to create the plan.
The plan doesn't pay its first full benefits until 2059, by which time the boomers, the youngest of whom were born in 1965, will be well past the age of retirement. Before then, anyone who falls into that group of workers without pension plans will get a pro-rated benefit.
"It's a move in the right direction. There is a serious gap for middle-income earners in the programs that are currently in place," Keohane says.
Ontario pension figures
Liberal budget documents point to three case studies to illustrate how much in benefits the ORPP would generate each year. These are based on workers who've worked for 40 working years and retired at 65.
- A worker who earned $45,000 over that period would collect $17,090 annually (including $10,680 from CPP).
- A worker who earned $70,000 over that period would collect $22,430 ($12,460 from CPP).
- A worker who earned $90,000 over that period would collect $25,275 ($12,460 from CPP).
Almost two-thirds of workers have no employer-sponsored plan. And the Canada Pension Plan currently pays about $12,500 a year per person, with the OAS and CPP raising the annual benefit to around $18,000.
For low-income workers, the CPP may be enough to make ends meet. But for middle-income people — those in the $40,000 to $100,000 wage bracket — there is usually a big shock when they have to adjust to living on a government pension.
Prime Minister Stephen Harper and former finance minister Jim Flaherty had said that middle-income Canadians aren't saving enough for their own retirement and that it should be up to them to save on their own through one of the government plans, such as registered retirement plans or tax-free savings accounts.
But Keohane said that's easier said than done. Middle-income people are carrying mortgages and trying to put children through school — and sometimes there's no money left.
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"Some of it is human nature. Unless you are forced to save, you don't. People reach the age of 50, then they start thinking about it, but by that time you've missed out on the potential for growth," he said.
The Ontario Registered Pension Plan asked both employers and employees to chip in 1.9 per cent of their income. The idea would be to boost retirement income by 15 per cent above what the CPP would pay. The ORPP benefit would range from about $6,410 annually for life for an employee whose annual income was $45,000, to about $12,815 annually for an employee whose income was $90,000.
It is designed to be a supplement to CPP.
'There's one caveat and that is despite it being great for Ontarians, the better model is for this to happen nationally' — Susan Eng of of the Canadian Association of Retired Persons
That's one reason why it's of such interest outside Ontario. The other provinces got behind an initiative led by Prince Edward Island finance minister Wes Sheridan last December to ask Ottawa to expand CPP benefits.
Flaherty rejected their proposal, saying business could not afford higher CPP premiums.
The Canadian Association of Retired Persons has had such a supplemental plan on its wish list for five years, says its vice-president of advocacy Susan Eng.
"There's one caveat and that is despite it being great for Ontarians, the better model is for this to happen nationally," said Eng, who also served on the committee that advised the province.
"Either … the other provinces pass parallel legislation or create a national plan. People move from province to province and the benefits should be portable."
'It's (CPP) totally not enough to live on.' - Susan Eng, CARP
Eng argued her members know they won't benefit from such a plan, but they care deeply what happens to their children's future. There is a perception that the younger generation is less well off financially, still juggling student loans and facing unstable job security at a time when their parents were buying homes and starting families.
Members of the Canadian Association of Retired Persons already know how difficult it is to live on CPP, she said.
"Remember many of those who retired earlier are receiving pensions at much lower rates, so the average is closer to $9,000 a year. It's totally not enough to live on," Eng said.
She said those who can continue working do, but mainly retired people survive by cutting back — they are the generation who are used to having to save and get by without things.
'It doesn't take into consideration the large financial services industry in Ontario. They've been cut out of the new scheme' — Bill Tufts, Fair Pensions for All
"By the same token, they also see their kids are not saving the same way. So they say, ‘Wait a minute, you're not saving, you don't have an employer pension, you think you're going to get by on CPP? That's not going to happen,'" Eng said.
The Canadian Federation of Independent Business called the ORPP proposala job-killer, saying payroll taxes have the effect of forcing employers to lay off workers or avoid new hires.
Bill Tufts, with the lobby group Fair Pensions for All, agrees, saying the increased contributions would cause Canadians to save even less than they do now.
Tufts argued that like public sector pensions, the plan puts a burden on the younger generation.
Eng says the “job-killer” criticism was also raised in the 1990s, when Paul Martin doubled CPP contributions over a five-year period without increasing benefits. In fact, jobs were not lost as a result, she said.
"For a worker who makes $40,000, the contribution rate at 1.9 per cent works out to about $760 a year or $63 a month. For that, would anyone fire an employee?" she said.
Wynne has traded barbs with the federal Tories over the pension scheme and Tim Hudak has rejected the idea, saying job creation comes first.
But for people familiar with retirement realities, the pension issue seems pressing, according to Eng.
"Our members do vote all the time, and they care intensely that their kids are not benefiting," she said.