Ontario is vowing to press ahead with its own mandatory retirement pension – one that other provinces are signalling they could sign on to – after Ottawa dismissed reform of the Canada Pension Plan in the near term.
The Ontario government could soon find allies among other provinces who also emerged frustrated by Ottawa’s hard line at a summit of federal and provincial finance ministers at Meech Lake, Que., on Monday.
Several ministers said that all provinces were on board to support a final statement that would commit to more study around increases to CPP contributions and benefits, but Finance Minister Jim Flaherty and minister of state for finance Kevin Sorenson bluntly declared Monday that reform must wait until the economy is stronger and that “now is not a time for CPP payroll tax increases.”
Charles Sousa, Ontario Finance Minister, said his province is currently the chair of the Council of the Federation, the collective body of Canada’s provinces and territories, and will be using that venue to see what steps could be taken next. “We’re looking at a made-in-Ontario solution as a result,” he said, adding that details have not been determined. “I’m going to reassess now what we’re doing.”
Ontario has yet to move beyond the preliminary stages, and has yet to decide whether to base its plan on the CPP, or some other model. But it faces significant challenges, including the competitive threat of payroll taxes rising only in Ontario. A source in the Liberal government acknowledged that concern, but said Ottawa’s experience in the 1990s demonstrates that increases need not deflate economic growth.
Advocates for CPP expansion have warned about provincial substitutes, saying it could be difficult to obtain benefits after moving to other jurisdictions.
The problem confronting Ontario and the rest of the country is how to get Canadians, particularly middle-class earners, saving more for retirement. Existing programs funded directly by the federal government – including Old Age Security and the Guaranteed Income Supplement – are seen as generous enough for low-income Canadians to maintain their existing standard of living in retirement.
As a result, the discussion among finance ministers has focused on proposals that would affect only Canadians earning $25,000 or more. Some have taken issue with that aspect, arguing that all Canadians should benefit from an enhanced CPP. The labour movement argues the exemption for those under $25,000 is meant to appease small business owners, who have spoken out against higher CPP premiums.
Mr. Sousa said the federal government is the main opponent of reforming the system. “I’m very disappointed that they used stall tactics to ensure that CPP enhancement wasn’t even considered at this time,” a visibly angry Mr. Sousa told reporters, saying his province was determined to build its own plan. “The only one that was not in favour was the federal government, and that’s unfortunate.”
The meeting marks a significant policy shift by Mr. Flaherty, who until Monday had never shut the door on CPP expansion – though he has been lukewarm to the idea since he tried and failed to persuade the provinces to support a “modest” enhancement of the CPP in 2010. At that time, Alberta and Quebec were not supportive and Ottawa decided to refocus its energies on Pooled Registered Pension Plans, which would involve voluntary contributions rather than the mandatory payments employees and employers make through CPP premiums.
Neither Mr. Flaherty or Mr. Sorenson would say when CPP reform would be considered. “I think we wait and see. We do what we’re doing. We focus on jobs, growth, prosperity,” Mr. Flaherty said. “And then get the unemployment rate lower and get more people trained for the jobs that are available in Canada and then watch the economy grow, and when it does, then we can have a look.”
In the meantime, other provinces are indicating they could support Ontario’s move. “We need to reconsider where we go from here,” said Prince Edward Island Finance Minister Wes Sheridan, who had proposed a CPP increase that would start in 2018. “A made-in-Ontario solution may involve every province of Canada.”
Still, it’s not clear whether other provinces would take part in Ontario pension plan, and how it would be administered.
B.C. Finance Minister Mike de Jong said he’s willing to take a look at Ontario’s proposal, but he is planning to bring in legislation in the spring that would offer British Columbians a voluntary pension option. The B.C. government introduced the Pooled Registered Pension Plans Act last spring but the proposed legislation was abandoned because of the provincial election call. Mr. de Jong said in an interview he intends to re-introduce the bill in the coming spring session. ‘We’ll look at what Ontario proposes, but for our part we intend to proceed with the legislation,” he said.
Policy experts in Ontario’s Finance Ministry have been working on different possible models for an Ontario pension plan, but the province is not leaning toward any particular one, a government source said. Mr. Sousa will now review the different options in greater detail to decide which one to move forward with. One option is to create a new plan modelled on CPP. Another is to administer the Ontario plan through a pre-existing public pension fund, such as the one of the various funds provincial and municipal employees already pay into, the source said. The source also pointed to the United Kingdom’s National Employment Savings Trust, which was set up by the government but run as an independent not-for-profit organization, as another possible model.
There is no timeline on exactly when Mr. Sousa will roll out Ontario’s new pension plan, and the timing is likely to depend on which model he ultimately chooses.
Current premiums are 9.9 per cent of pay, split evenly between the employee and the employer, on income between $3,500 and $51,100. The current average CPP payment to retirees is $7,234.32 a year and the maximum payment is $12,150.
With a report from Justine Hunter in Victoria