What Ontario wants from this weekend’s CPP meeting
As Canada’s finance ministers head to Vancouver this weekend to talk about improving the Canada Pension Plan (CPP), there are great expectations that the meeting may finally lead to action.
A decade of dithering on this important piece of social policy shows all too clearly how politics is a short-term game and how economic policy is a long one. Rarely do they meet. But this is a time when it might just happen.
Prime Minister Justin Trudeau campaigned for better retirement security in 2015. His finance minister, Toronto Centre MP Bill Morneau, has a background in pension management. Morneau also advised Ontario on its provincial pension plan, which launches in 2018. Ontario, though willing to go it alone, would prefer a national retirement solution.
The CPP Investment Board, which manages the money that funds our national plan, has the means to pay more to retirees. Its 10-year annual rate of return after inflation is 5.1 per cent, while the Chief Actuary of Canada says it needs to make 4.1 per cent a year to meet its obligations. The CPPIB can fund today’s level of pension payments for the next 75 years. It has room to manoeuvre.
Last week, the staid Canadian Institute of Actuaries (CIA), which represents the professionals who crunch pension numbers for a living, came out in support of a limited expansion of the CPP. The CIA favours something not unlike the Ontario plan, an add-on aimed at supporting middle-income workers.
Ontario finance minister Charles Sousa says that federal and provincial officials have been talking continuously since the election, looking for a way to make things work. This was not the case during the Harper years. “There’s an openness and a desire to see action,” the Mississauga South MPP said in an interview. “We’re all talking.”
But if there’s nothing firm decided on by the end of the weekend, Ontario is moving on, Sousa says. “I’ve made it clear that the talk (this weekend) is about action. It’s about defining something and that determines my next steps.
“We want to come out of the meeting with a definitive timeline — expectations, prescriptions as to what the enhancement would be and the degree of adequacy it will provide . . . Those are the conditions.”
Ontario has led the way on this notalways-popular initiative by pressing forward with its Ontario Retirement Pension Plan (ORPP). It has put pressure on other provinces and Ottawa to come to the table.
But the ORPP has weaknesses and is not popular among businesses, particularly small ones. Many also wonder why it’s a good idea to force people with incomes as low as $3,500 a year to participate. Those people need the money now, not later, and what will they get in the end anyway? Not much.
Another piece of ORPP legislature passed last week, setting out the details of contribution rates and benefits.
It confirms that by 2020, all Ontario workers must either be enrolled in the ORPP or have a comparable company plan. Employees and employers will equally contribute 1.9 per cent on annual earnings up to $90,000.
The goal is to provide up to 15 per cent of pre-retirement income over a 40-year working life. At the $90,000 level, that would be $13,500 a year.
This plan would be worse than a CPP expansion, for three reasons.
A better CPP would be national, while the ORPP is Ontario-only and thus would not be portable. Ontario’s plan is also an add-on aimed at one target group. Full CPP expansion — if that’s in the cards — includes everyone.
Finally, going it alone is far more expensive for Ontario than piggybacking on the existing collection and investing expertise of the CPP would be. Those extra costs reduce a fund’s return.
So the Ontario government is in a tough spot. Sousa is hoping for the best in Vancouver, but says he can’t wait.
“I’ve got to keep both tracks going,” he says. “If we see merit in a national solution, we’ll move forward with a national solution. Failing that, the ORPP will be our alternate. The predicament I’m under is one of timing.”
It’s probably going to be a long weekend, and not of the cottage kind. Adam Mayers writes about investing and personal finance on Tuesdays and Thursdays. Have a question? Reach him at amayers@thestar.ca