The Government of Ontario is planning to move ahead with its plans to implement a new pension scheme for the province. The Ontario Retirement Pension Plan (ORPP) will require employers to match additional employee contributions of 1.9 percent of their income, up to a maximum income level of $90,000.
Should pension reform be a priority for the Ontario government? According to 72 percent of the businesses we recently surveyed, the answer is yes. Many are concerned that Ontario’s economy will be negatively affected by an imminent bump in the number of retirees that haven’t saved enough to maintain a reasonable standard of living.
Importantly, our members have also been clear about their concern for Ontario’s broader economic picture, in which the economy is projected to grow slowly for the foreseeable future. In this context—with businesses already facing other rising costs—they are wary of any increase in payroll taxes.
With this concern in mind, we recently submitted a letter that calls on the Government of Ontario to answer six crucial outstanding questions:
What will be the impact of a fully-implemented ORPP? If it has not done so already, the government needs to conduct an overall impact analysis of the ORPP to fully assess its costs and benefits from economic and social perspectives. If it has, the results should be made public. What is the possibility of people saving less privately as a result of ORPP contributions (which would result in no positive net impact on retirement preparedness)?
How will the government treat businesses that cannot afford to match mandatory contributions under the ORPP? Will there be exemptions for small businesses? Will small businesses be directed or mandated to offer another plan (PRPP or Group RRSP) as an alternative?
What types of workplace pension plans will be considered “comparable” to the ORPP? The government has pledged to exempt those employees already participating in a comparable workplace pension plan from enrolling in the ORPP. If businesses decide that an alternative pension scheme is preferable, will they qualify as “comparable”?
Will the government consider broadening the diversity of sources of retirement income to mitigate risk? Experts agree that having multiple sources of retirement income through well regulated private as well as public pensions enhances sustainability and reduces the risk of a retirement income shortfall. Will a mandatory ORPP scheme provide a desirable level of diversification for Ontarians’ sources of retirement income, and would the relative balance of the retirement savings system be impacted?
How will the government address worker mobility issues? What happens to the ORPP contributions of employers and employees if employees are required to move out of the province, or if they transfer to workplaces in Ontario that already offer a registered workplace plan (or PRPP)? Will this increase the already significant red tape burden for businesses?
How will the ORPP impact the self-employed? Self-employed individuals often face a greater degree of income variability. While savings vehicles like the PRPP provide flexibility in terms of employer contributions, it is not clear that the ORPP would do the same.
Employers need more information before they can understand the full impact of the ORPP on their business. Before moving ahead with implementation of the new pension scheme, government needs to provide answers to these outstanding questions.