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ORPP: Does it deserve the applause?

By Louis Erlichman
IAM Research Director for Canada

After winning a majority in the recent Ontario election, the Liberal Government has re-introduced the budget which had been rejected by the opposition parties and precipitated the election.

A centerpiece of the budget is the Ontario Retirement Pension Plan (ORPP), a publicly-run Ontario pension plan to supplement the existing national public plans, to start in 2017.

The Ontario Liberals, along with almost all other provincial governments, have, in the last few years, supported an improvement in the Canada Pension Plan (CPP) retirement benefit, as proposed and promoted by the Canadian Labour Congress (CLC).

When the federal Conservative Government stonewalled the national CPP improvement, the Ontario Liberals said that they would go ahead with an Ontario plan, with the hope that their plan could be rolled into an expanded CPP when a more reasonable federal government was in place.

Many proponents of CPP expansion have applauded the ORPP as a positive step.

The question is whether the proposed ORPP will be a help or a hindrance to the CPP improvement that is essential to retirement income security in Canada.  As in many things, the devil is in the details.

In fact, the ORPP outlined in the budget is very general and leaves many questions unanswered.

While the CLC has called for straightforward doubling of the current CPP benefit going forward, the ORPP puts forward a more complicated structure, focusing on “middle-income” earners – increasing the maximum annual earnings coverage level from the current $52,500 to $90,000, and possibly raising the annual minimum earnings coverage level from the current $3,500.

While the ORPP benefit structure is somewhat more complicated, it is similar to a number of proposals being discussed for CPP improvement, and could fairly easily be integrated into the CPP.

A more troubling aspect of the ORPP is that it does not provide universal coverage, a key attribute of the CPP.   The ORPP would allow employers to opt out, where they have a “comparable workplace pension plan”. 

It is not clear what will be considered a “comparable” plan – a group RRSP or the new Pooled Registered Pension Plans (PRPPs), which are just another type of RRSP?  Will there have to be a minimum irrevocable employer contribution (as in the CPP)?  

What is clear is that any alternative will not provide workers with the universal, portable, indexed benefit guaranteed by the CPP.

The ORPP is actually a backward step for the Ontario Liberals, who supported the expansion of the universal CPP.

And the opt-out provision will make the funding of the ORPP more problematic – leaving a strong possibility of “adverse selection” – younger workers being opted out – undercutting the financial viability of the plan.

There is even a risk that a non-universal ORPP would be used to attack the universality of the CPP.

It is no comfort that the Government’s “Technical Advisory Group”, which is supposed to work out the details of the ORPP, is chaired by Paul Martin, whose Department, when he was federal Finance Minister in the 1990s, was at the centre of a campaign to discredit and ultimately privatize the CPP.

So it is far from clear that the ORPP would be a positive step towards improving public pensions and retirement income security in Canada.  And since the Liberal budget also includes provisions which would bring PRPPs to Ontario, and follow the federal Conservative lead to introduce Target Benefit Plans allowing employers to reduce earned pension benefits, it might be a good idea to hold the applause for the Ontario Liberal budget until we can clearly assess the potential damage.