: Strengthening Retirement Security


Ministry of Finance

Strengthening Retirement Security

November 17, 2014

The government is committed to a strong and secure retirement income system that helps ensure working Ontarians will be better able to enjoy their retirement years.

The Retirement Undersaving Problem

Several studies have shown that many people are not saving enough for retirement, a problem that will likely worsen over time. Unless action is taken now, a significant portion of today’s workers will face a decline in their living standard in retirement. 

Increasing retirement savings remains a government priority that requires a multi-faceted approach and close collaboration with:

  • Individuals
  • Employers
  • Labour
  • The financial services industry
  • All orders of government. 

Canada Pension Plan Benefits Are Low

The Canada Pension Plan (CPP) is fundamental to the retirement income security of all Canadians. However, its benefits are too low to meet the needs of many workers. 

  • Since 2010, Ontario has been advocating for an enhancement to the CPP and has played a leadership role in discussions on ways to improve Canada’s retirement income system. 
  • Despite consensus among provinces and territories to continue working on this issue, the federal government unilaterally shut down discussions on options for an enhancement to the CPP. 

The Ontario Retirement Pension Plan

While Ontario’s preferred solution remains an enhancement to the CPP, the cost of inaction is simply too high. That is why the government plans to introduce a new mandatory provincial pension plan – the Ontario Retirement Pension Plan (ORPP) – that will offer a secure benefit for life. The ORPP will be designed to facilitate the possibility of its integration with the CPP if an agreement is reached on CPP enhancement. 

The implementation of the ORPP is intended to coincide with the expected reductions in Employment Insurance premiums in 2017. 

The ORPP is part of the government’s plan to invest in people and to help working families build a more secure retirement future. The ORPP would help address the retirement undersaving challenge, particularly for middle-income earners without workplace pension coverage. 

Key Features of the ORPP

Building on the success of the CPP, the ORPP would:

  • Provide a predictable stream of retirement income for life by pooling longevity and investment risk, and indexing benefits to inflation. 
  • Aim to provide a replacement rate of 15 per cent of an individual’s earnings, up to a maximum earnings threshold.
  • Require equal contributions shared between employers and employees, not exceeding
    1.9 per cent each on annual earnings up to a maximum earnings threshold of $90,000 (in 2014 dollars). 
  • Be earned as contributions are made to ensure that the system is fair, and younger generations are not burdened with additional costs.
  • Be mandatory for all employees working in Ontario who do not have a comparable workplace pension plan.
  • Be publicly administered, at arm’s length from government.  

Exemptions would include:

  • Earnings below a low earnings threshold would be exempt from contributions. The government will consult on whether the ORPP’s low earnings threshold will mirror the CPP’s threshold of $3,500. 
  • Earnings beyond a maximum earnings threshold of $90,000 (in 2014 dollars) would be exempt from contributions. This threshold would increase every year, consistent with increases to the CPP maximum earnings threshold. 
  • Employees participating in a comparable workplace pension plan and self-employed individuals would not participate in the ORPP. The government will consult on what constitutes a comparable workplace pension plan and how to best assist self-employed individuals in achieving a secure retirement future. 

ORPP Implementation

  • Implementation would start in 2017, with enrolment of employers and employees occurring in stages, beginning with the largest employers. 
  • Contribution rates would be phased in over two years. 
  • Associate Minister of Finance, the Honourable Mitzie Hunter, has begun to engage with businesses, labour, organizations, associations, individuals, families and communities across the province to ensure that the ORPP properly balances retirement income security with the impact on business. 
  • Michael Nobrega is serving as Implementation Lead, providing advice to ensure a smooth transition to 2017. The government will continue to work with the Technical Advisory Group on Retirement Security. 
  • The government will introduce legislation shortly and will formally consult on key design issues in early 2015. 
  • Feedback from the government’s consultations will inform the ORPP’s design and structure. 

Pooled Registered Pension Plans

Pooled registered pension plans (PRPPs) will offer employees and the self-employed a voluntary, low-cost, tax-assisted option to increase retirement savings. Ontario is committed to introducing a legislative framework for PRPPs that is broadly consistent with the model introduced by the federal government and adopted by various provinces. The government will introduce this legislation shortly. 

Target Benefit Pension Plans

Ontario’s strategy to enhance retirement income security includes pension reforms to allow for more flexible models such as target benefit pension plans. These plans offer employers a new option by combining features of defined benefit pension plans and defined contribution pension plans.  

Target benefit pension plans “target” a specific pension, funded by fixed contributions. Unlike defined benefit pensions, target benefit pensions may be reduced to address funding shortfalls.  

The government will be consulting on a regulatory framework for target benefit pension plans in Ontario. Initial consultations, including the release of a consultation paper, will focus on a framework for target benefit multi-employer pension plans. 

Ongoing Retirement Income Security Reforms

Strong pension regulation and oversight are key factors in ensuring retirement income security is effective and responsive. The regulator, the Financial Services Commission of Ontario and its Superintendent, require sufficiently effective power to ensure compliance with pension minimum standards legislation. The government will move forward with the necessary regulations to proclaim amendments to the Pensions Benefits Act, which will expand the Superintendent’s powers. 

Pension Reforms Underway

In November 2014, the government passed a regulation to extend the exemption that certain pension plans have from the “solvency concerns” test, from December 31, 2014, to December 31, 2017.

Earlier this fall, regulatory proposals relating to information statements for retired and former pension plan members; disclosure of environmental, social and governance factors in pension investment decisions; and transfer of pension benefits from Ontario plans to plans in other jurisdictions were posted for public consultation. After incorporating feedback, regulations will be considered for approval later this year.

The government remains committed to and continues to work on other areas of reform, including updating filing requirements to reflect changes to accounting standards, allowing payment of variable benefits from defined contribution pension plans and providing an exemption from the “30 per cent rule” for pension investments in Ontario infrastructure.

Sustainable and Cost-Effective Public-Sector Defined Benefit Plans

Pooled Asset Management

The government will be moving forward with a framework to enable the pooling of pension plan assets in the broader public sector as well as endowment and other funds of public entities. Larger pools of capital enable access to a broader range of investments, which is key to improving risk-adjusted returns. 

Framework for Conversion to Jointly Sponsored Pension Plans

The government will facilitate conversions or mergers of employer-sponsored, single-employer pension plans into new or existing jointly sponsored pension plans. Consultations on the regulations required for these conversions will begin in the coming months and regulations are anticipated to take effect July 1, 2015. 

Susie Heath, Minister’s Office, 416-325-3645
Scott Blodgett, Ministry of Finance, 416-325-0324

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