The Ontario Liberals are going it alone on pensions. Trailing a major move on increasing the Canadian Pension Plan throughout the year, they were not happy when the Federal Finance Minister poured cold water on the idea at the December meeting of provincial finance ministers at Meech Lake in December. As a result, they are now promising a supplementary Ontario-only pension plan, which they wish to impose in order to increase the guaranteed level of payments to future pensioners.
The plight of people in Canada who have not saved enough for their retirement is undoubtedly desperate but the crucial phrase here is that they ‘have not saved enough’. One of the reasons that pension saving is not seen as important by the current generation is that they are used to the government stepping in to solve any problem they have rather than coming up with a solution themselves.
The CPP (Canada Pension Plan), along with OAS (Old Age Security) and GIS (Guaranteed Income Supplement), provide a base pension for everyone in Canada to ensure that their basic needs have been met. However, the only way for people to ensure they have a comfortable retirement is to defer some of their spending now in order to be able to spend it in their later years. Given that people work for around 40 years and spend, on average, over 20 years in retirement, each month’s pay-check essentially has to cover six weeks living expenses.
Ontario’s Premier Kathleen Wynne seems to balk from making her constituents face up to that reality. Instead she wants to take the nanny-ish route of deducting more from their salaries rather than giving people the choice to save or spend. Once again, pensions will suffer from being defined as a government issue rather than an issue for the individual themselves.
A parallel OPP (Ontario Pension Plan) will waste money duplicating the infrastructure already in place for the CPP and will likely demand even more from employers, thus increasing the cost of hiring. This seems a highly inefficient way of improving the lives of future retirees and seems to be an extension of government in to the lives of ordinary citizens that just isn’t warranted.
If Ms. Wynne is genuinely worried about the plight of future pensioners, a low-cost option would be to introduce the PRPP (Pooled Registered Pension Plan) style savings plans that Quebec is going for, with auto-enrolment to encourage participation. These don’t require employer contributions, just employer facilitation, which shouldn’t be too big a burden on the business community – and the infrastructure for the administration of these pension plans is already available through the strong financial services sector in Canada.
Of course, this would reduce the government to the role of encouraging people to save rather than the role of appearing to solve people’s problems for them, a role the Ontario Liberals obviously prefer. And there’s a possible election this spring – who’d have guessed?
Google Plus: TomMurray
What do you think? Let us know in the comments below!