A new made-in-Ontario pension plan will expand retirement incomes for three million workers in the province, but exclude millions of others who already have workplace plans or are in federally regulated industries such as banking.
Ontario's Liberal government unveiled its Ontario Retirement Pension Plan (ORPP) in Thursday's provincial budget, saying it will act as a top-up to the Canada Pension Plan to improve retirement incomes for most workers. The initiative will be introduced in conjunction with a new voluntary savings program known as the Pooled Registered Pension Plan as a further boost to Ontario residents' options to save for retirement.
Unlike the CPP, not all workers will be eligible for the ORPP, the government said.
It will cover about half of Ontario's six-million-person work force, excluding the self-employed, all workers whose companies have workplace pension plans, and those in federally regulated sectors like banking, transportation and telecommunications.
Ontario Finance Minister Charles Sousa said the ORPP will help the people who face the greatest income reduction in retirement.
"This will target those most at risk of under-saving, particularly middle-income workers," Mr. Sousa told reporters.
Conservative Leader Tim Hudak said the ORPP will be expensive for employers because it will create a new payroll tax to cover their share of contributions, and will do nothing to help Ontarians get better jobs in the first place.
"It's pretty darn hard to save up for retirement when you can't pay your hydro [bill]," he said.
The province decided to act alone in creating the new top-up program for the CPP after the federal government said last year that such a plan would be too detrimental to the economy.
Ontario has invited other provinces to participate, and Prince Edward Island and Manitoba have joined the advisory body designing the program. Alberta, British Columbia, Newfoundland, Nunavut and Northwest Territories are in talks with Ontario about the proposal.
The government plans to launch the ORPP in 2017 and phase it in over two years, the government said.
Workers would contribute 1.9 per cent of their incomes, which will be matched by employers, up to a $90,000 income maximum. It aims to pay out about 15 per cent of income before retirement.
Jim Keohane, who heads the $52-billion Healthcare of Ontario Pension Plan, said the ORPP is a "step in the right direction" for pension reform in Canada because it is not just a voluntary savings plan but will provide a guaranteed benefit.
"When you know how much pension income you are going to have – when the amount is defined – you can spend with more confidence," he said. "You know you are getting a cheque each month, a set amount."
Also on Thursday, the government said it plans to create a new pension plan manager for contributions made to the ORPP, which are expected to top $3.5-billion annually. The new pension manager could also handle funds for other public sector entities and pension plans.
The Workplace Safety and Insurance Board and the Ontario Pension Board, which together manage $40-billion in assets, have agreed to participate.
The new pooled registered savings plan that will supplement the ORPP will be voluntary for companies, and employees, although automatically enrolled, may opt out. Participants' payroll deductions would be managed by private-sector investment firms.
Lawyer Mitch Frazer, who advises companies on their pension plans, said the new programs will clearly improve retirement savings, but he has not sensed a large demand from employers for a PRPP program.
"I think maybe some will pick it up over time if it is seen as a low-cost benefit they can offer to employees," he said.