March 27, 2014 – A new report from the Ontario Chamber of Commerce (OCC) and Certified General Accountants of Ontario (CGA Ontario) reveals that Ontario’s employers do not support a made-in-Ontario pension plan. The report, An Employer Perspective on Fixing Ontario’s Pension Problem, identifies Pooled Registered Pension Plans (PRPPs) as employers’ preferred solution to helping Ontarians better prepare for their retirement.
As part of the consultation process, the OCC and CGA Ontario hosted seven employer roundtable discussions across the province. The authors, in partnership with Leger Marketing, also surveyed close to 1,000 companies.The result – employers worry that the current pension system in Ontario is unsustainable. In fact, more than seventy percent of employers surveyed stated that pension reform should be a top government priority.
Employers identified a number of principles that should inform pension reform, including:
• Pension reform should not diminish Ontario’s long-term competitiveness;
• Pension reform should target those that need pension assistance;
• Pension reformshould build upon Ontario’s global expertise in pension investment; and
• Employers support pan-Canadian solutions, not province-specific reforms that further fragment and complicate Canada’s pension landscape.
Eighty-six percent of employers surveyed support introducing PRPPs in Ontario.Far fewer supported enhancing the Canada Pension Plan (CPP) or the introduction of an Ontario Pension Plan. Only 31 percent of the respondentsto our survey who support CPP enhancement support the idea of a made-in-Ontario solution.
According to Bob Malcolmson, CEO & General Manager of the Greater Oshawa Chamber of Commerce, “Financial literacy is fundamental to solving the retirement income problem. Many Ontarians do not understand the available pension saving options and thus those tools remain underutilized. Employers strongly advise the government to engage in broader education initiatives that would address the lack of financial planning for future retirement among Ontarians.”
According to Allan O’Dette, President and CEO of the Ontario Chamber of Commerce, “Employers recognize that there are no quick and easy fixes. Ontario’s pension problem requires a long-term perspective and a comprehensive solution that results in seniors having adequate replacement income when they retire. Employers felt that PRPPs were the best solution to helping Ontarians save more.”
Pooled Registered Pension Plans (PRPPs) are workplace pensions managed by regulated financial service providers and specifically targeted to small and medium enterprises.
“Discussions clearly highlighted employers’ concerns,placing emphasis onthe importance of improved financial literacy and retirement planning,”said Doug Brooks, FCGA, CEO, CGA Ontario. “Ontarians of all ages must understand the need to preparefor their retirementto ensure they will beable to maintain their standard of living.”
The report argues that Ontario’s long term economic prosperity depends on the ability of the approaching large cohort of retirees to maintain their purchasing power.
Ontario’s pension system is unsustainable.
• Roughly 1.3 million workers in Ontario do not have access to any type of employer-sponsored workplace pension plan.
• Less than 28 per cent of workers in Ontario’s private sector participate in an employer-sponsored workplace pension plan.
• Things are only going to get worse: Since the vast majority of small businesses do not have a retirement plan in place for employees, unless action is taken to facilitate retirement savings in the workplace, the gap between “pension haves” and “pension have-nots” will continue to widen.
• Fixing Ontario’s pension problem must be a priority. This challenge can be overcome by enhancement of the pension system. These enhancements must be informed by principle and evidence, and made in consideration of the current business climate.
• Our members strongly endorse the efforts to improve financial literacy which would likely lead to much greater use of existing saving tools. Financial literacy should be woven into the curriculum at all levels.
THE POTENTIAL SOLUTIONS
There are three main options for reforming Ontario’s pension system on the table: a) the expansion of the Canada Pension Plan, b) the creation of an Ontario Pension Plan, and c) the implementation of a Pooled Registered Pension Plan regime in the province
A. The Canada Pension Plan is a mandatory pension program for employed and self-employed Canadians, and is intended to replace 25 percent of career average annual pensionable earnings. Employers and employees must contribute.
B. The Ontario Pension Plan: details are scarce. The provincial government has signalled they will create a provincial pension plan, modeled after the CPP (and complete with mandatory employer contributions).
C. Pooled Registered Pension Plans are a new type of tax-assisted retirement savings plan. PRPPs are intended to make it easier for self-employed individuals and employees of small employers to save for retirement by offering a savings tool that is low cost, professionally managed and portable from one workplace to another.
BUSINESS’ PREFERRED SOLUTION
Employers feel that PRPPs are the best solution.
• PRPPs offer a targeted solution aimed squarely at the coverage problem–specifically the 1.3 million workers without access to any workplace-based retirement savings vehicle.
• PRPPs enable a greater degree of choice for employers and employees.
• PRPPs will facilitate lower investment fees as they will create economies of scale.
• Employers are leery of an enhancement to the CPP or the creation of an Ontario Pension Plan.
The expansion of the Canada Pension Plan is not an ideal option.
• Employers worry that CPP enhancement is a “blunt tool” that won’t adequately address the needs of those without a workplace pension, including the self-employed. Enhancing CPP would increase costs and impose additional financial burdens on those individuals who are already well-served by existing savings and pension frameworks.
The creation of an Ontario Pension Plan is an even less ideal option.
• Employers are concerned about the costs of setting up and of administering a made-in-Ontario solution, particularly when a government-managed program already exists at the federal level.
• An Ontario Pension Plan would further fragment Canada’s pension landscape, adding complexity and costs for employers who operate in more than one province.
About the Greater Oshawa Chamber of Commerce
The Greater Oshawa Chamber of Commerce is one of the largest business associations in Durham Region with over 1,200 entrepreneurs, managers and corporate executives as members representing some 800 businesses large and small, in Oshawa and Durham Region, employing over 40,000 in the greater Oshawa area.
About the Ontario Chamber of Commerce
The Ontario Chamber of Commerce (OCC) is a business network of 160 local chambers of commerce and boards of trade in Ontario. Through this network, we are the voice of 60,000 members that range from small businesses to major corporations and industry associations. Together, our members employ two million people and produce nearly 17 percent of Ontario’s GDP.
About the Certified General Accountants of Ontario
CGA Ontario is a self-governing body that grants the exclusive rights to the CGA designation, and controls the professional standards, conduct and discipline of its members and students in the province of Ontario. Certified general accountants (CGAs) are committed to meeting the needs of businesses and organizations with strategic insight, leadership and demonstrated abilities. In Ontario, there are more than 22,500 CGAs and 9,000 students working toward their designation. CGA Ontario is committed to supporting students in achieving a professional accounting designation.