Will Ontarians rush to the polls to support paying more for a better pension?
That's the gamble Kathleen Wynne is counting on as she faces voters for the first time as leader of the Ontario Liberals.
The May 1 Ontario budget – which is essentially the Ontario Liberal election platform heading into the June 12 vote – proposes a new Ontario Retirement Pension Plan (ORPP), billed as a top-up to the Canada Pension Plan.
Ms. Wynne has already made this a centrepiece of her campaign. New premiums for the plan would collect an estimated $3.5-billion a year, so there is a lot of money involved. Here's how it works.
What is the ORPP?
The ORPP is aimed at people who do not have a workplace pension and is modelled as a top-up to the Canada Pension Plan. That means contributions would be mandatory for some and benefits would be guaranteed in retirement for life. Both employees and employers would be required to contribute up to 1.9 per cent of earnings up to $90,000.
The Ontario budget said someone earning $45,000 a year would pay $788 in annual premiums for the new plan and would receive a maximum annual benefit from the Ontario plan of $6,410, in addition to payments from CPP.
What does the CPP already offer?
The CPP provides an average annual benefit of $7,600 in retirement and the maximum payment is $12,460. To pay for this, Canadians contribute up to $2,356.20 a year, an amount that is matched by employers. (The maximum CPP premium is paid by everyone earning $51,100 and up. One key difference of the Ontario plan is that contributions would keep rising up to $90,000 in income.)
The money from CPP contributions is put into an arm's length fund by the federal government that is managed by the CPP Investment Board. As of March 31, 2013, the size of that fund is $183.3-billion. Over the past 10 years, the investments made by the board have earned a 7.4 per cent rate of return (or 5.5 per cent when inflation is removed).
Will the proposed ORPP contributions be managed by the CPP Investment Board?
No. Ontario and other provinces campaigned for an enhancement of CPP through higher premiums and benefits, but the federal government has rejected this idea. What Ontario is proposing would be managed independently of the CPP, with details to come later. The Liberals have said the new fund could potentially be absorbed by the CPP in the future should there be a change in policy at the federal level. The federal NDP and Liberals both support an enhancement of the CPP.
Would contributing to the ORPP be mandatory?
Yes, but not for everyone. Unlike the CPP – which is mandatory for everyone – the ORPP would not apply to Ontarians who already participate in a workplace pension.
What kind of reaction has the plan received?
Pension reform has become a heated and highly polarized debate. Supporters of an enhanced CPP – including the seniors advocacy group CARP and labour groups – have generally supported the Ontario idea as a less-than-ideal step in the right direction.
Business groups that successfully urged Ottawa not to increase the CPP also oppose Ontario's plan. The Canadian Federation of Independent Business has said it will kill jobs and economic growth by forcing employers to put money toward pension contributions for existing employees rather than making new hires.
Personal finance author Gordon Pape praised the Liberal government for tackling a challenging long-term policy issue, but questioned whether it will win public support and sided with the view that it could hurt jobs and business investment.
Former Bank of Canada governor David Dodge recently co-authored a policy paper in which he said the Ontario proposal would be "superior" to many corporate pension plans, would lead to higher savings and would have a "modest" impact on the economy.
The industry magazine Benefits Canada published a sampling of what it described as "mixed" reaction to Ontario's plan.
Where does Progressive Conservative Leader Tim Hudak stand?
The Ontario Tory leader says the ORPP is a "payroll tax" that will kill thousands of jobs and hurt the economy, taking a similar stand to federal Conservatives. Mr. Hudak has not yet released a policy platform, but has said his "million jobs plan" is about lowering taxes and business costs to encourage hiring.
Where does NDP Leader Andrea Horwath stand?
The NDP has not yet released its platform, but the NDP leader has long advocated for an expanded CPP and, like Ms. Wynne, has criticized Prime Minister Stephen Harper for rejecting CPP reform. Ms. Horwath has not said whether she supports the Liberal pension proposal.
How will this play out during the campaign?
In attempting to make Ontario's pension battle with the Prime Minister a central feature of the Ontario campaign, Ms. Wynne and her campaign team clearly expect the ORPP to be popular with voters. However, Ms. Wynne had previously advocated another big idea – raising billions in new revenue for public transit – only to back down in the face of a cool public response. As Ontario voters tune in to the campaign and respond to the proposed budget, the Liberals will have the option of adjusting their plans ahead of releasing their official party platform based on that reaction.
Bill Curry reports on finance from Ottawa.