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: Strengthening Retirement Income Security for All Ontarians

Backgrounder April 23, 2015

For many workers in today’s economy, long-term, full-time employment with pension benefits is difficult to attain. Many Ontarians must save and invest individually, forcing them to deal with the complexities of stock markets and interest rates on their own. As well, all Ontarians will face greater financial pressure and uncertainty due to longer average lifespans.

Unless action is taken now, the retirement savings challenges of many Ontarians will likely worsen over time.

After a lifetime of hard work, Ontarians deserve a secure retirement. That is why the government is strengthening retirement income security through the Ontario Retirement Pension Plan (ORPP) to provide a predictable, lifelong stream of retirement income to eligible Ontarians.

The Need for Action to Enhance Retirement Savings

Recent studies show that a significant number of Canadians are concerned that they will not have sufficient income for their retirement years.

  • A Sun Life Financial report shows that 36 per cent of working Canadians are not confident about having enough money to enjoy the lifestyle they want in retirement, compared to 20 per cent of current retirees.

These concerns reflect the economic and social changes that underpin the need to enhance retirement savings. 

A Changing Labour Market

In today’s workforce, people change jobs and employers frequently. On average, workers can expect to change employers about five times throughout their careers. A mobile workforce makes consistent participation in a workplace pension plan more difficult because most workplace pension plans are specific to an employer.

Non-standard employment, which includes temporary work, part-time work and holding multiple jobs, makes up an increasing share of today’s labour market. Workers in non-standard employment, particularly temporary workers, may find it difficult to access workplace pension plans.

  • In 2013, only 35 per cent of Ontario workers participated in a workplace pension plan.
  • Pension coverage is even lower for younger workers — in 2012, only about one-quarter of workers aged 25 to 34 had workplace plans, compared to nearly half of workers aged 45 to 54.

Canada Pension Plan and Old Age Security Benefits Are Low

The benefits provided by the Canada Pension Plan (CPP) and Old Age Security (OAS) are not enough to meet the retirement income needs of many Ontarians.

  • The CPP replaces 25 per cent of an individual’s earnings up to a maximum earnings level, which currently is $53,600.
  • The current maximum annual CPP benefit is about $12,800 per year, but in 2014, the average CPP annual benefit was only about $6,900 in Ontario. When combined with that year’s average OAS benefit to Ontario’s seniors, this amounted to about $13,100 per year.

Longer Lifespans and Low Personal Savings

Average lifespans are increasing and this trend is likely to continue. Half of Canadians who are 20 years old today are expected to reach age 90, and one in 10 is expected to live to 100. This will put greater pressure on the retirement income savings of Ontarians.

Experts generally recommend that individuals aim to replace 50 to 70 per cent of their pre-retirement income to maintain a similar living standard when they retire. However, studies show that many people are not saving enough to meet this goal. In 2013, there was approximately $790 billion in unused registered retirement savings plan (RRSP) room in Canada, including about $300 billion in Ontario alone.

Savings Are Important to Ontario’s Economy

Inadequate retirement savings could have broader economic implications. As individuals age, their consumption of goods and services could decline, which would dampen economic growth.

As Ontario’s population ages, the ratio of retirees to workers will increase, putting pressure on younger workers to support health care and other services for seniors.

As noted by David Dodge, former Governor of the Bank of Canada and Richard Dion, Senior Business Advisor at Bennett Jones LLP, improving productivity will foster economic growth and help address the demographic challenge. Enhancing productivity requires higher levels of investment. An effective way to finance this would be through greater household savings.

The Ontario Retirement Pension Plan

Unless action is taken now, saving adequately for retirement will likely become more difficult over time. That is why the government is moving forward with a new mandatory provincial pension plan — the Ontario Retirement Pension Plan (ORPP).

The ORPP would build on the strengths of the CPP and would:

  • Offer a predictable stream of income in retirement for life, and index benefits to inflation;
  • Aim to replace 15 per cent of an individual’s pre-retirement earnings up to $90,000 (in 2014 dollars);
  • Require contribution rates to be the same for employers and employees, with a maximum combined rate not to exceed 3.8 per cent; and
  • Require benefits to be earned as contributions are made, to ensure that younger generations would not pay additional costs associated with older workers’ benefits. 

On December 8, 2014, the government introduced Bill 56, the proposed Ontario Retirement Pension Plan Act, 2014, which lays out the foundation for the plan and a commitment to establish the ORPP by January 1, 2017.

In December 2014, the government released a consultation paper on three key ORPP design questions, including scope of the plan; minimum earnings threshold; and supporting the self-employed. To help shape the Province’s approach to these key areas, in early 2015, Associate Minister of Finance Mitzie Hunter led an extensive consultation process with business, labour associations, young workers, pension experts, individuals and families across Ontario. 

Moving Forward on ORPP Design

The government will consider feedback from consultations and announce its conclusions on the key design questions shortly.

Establishing the ORPP Administration Corporation

Ontario is introducing legislation that would establish the Ontario Retirement Pension Plan Administration Corporation (ORPP AC), a professional, independent pension organization that would be responsible for administering the ORPP.

The ORPP contributions and investment funds would be held in trust for ORPP beneficiaries and would not form part of general government revenues.

Key attributes of the ORPP AC would include the following:

  • Responsibility for operationalizing the ORPP, administering the plan and investing contributions;
  • An independent, professional board of directors appointed by the Lieutenant Governor in Council;
  • A board nomination process to secure highly qualified, expert board members;
  • A transparency and accountability framework based on best practices in pension governance, including annual reporting, an annual meeting and strong financial controls; and
  • Duties that are consistent with prudent and responsible pension management.

The legislation would also mandate a legislative review within 10 years, which would provide an opportunity to ensure that the mandate, governance and operational framework of the ORPP AC continue to be appropriate for the long term.

The government plans to put in place an interim board to oversee the implementation process and, if the legislation passes, expects to name an interim chair for the ORPP AC in the coming months.

Moving Forward on Other Key Reforms

Pooled Registered Pension Plans

On December 8, 2014, the government introduced the proposed Pooled Registered Pension Plans Act, 2014. The proposed Act provides a legal framework for the establishment and administration of pooled registered pension plans (PRPPs) in Ontario. PRPPs would give employees and the self-employed a new type of voluntary, low-cost, tax-assisted option to help increase retirement savings.

Broader Public-Sector Asset Pooling

Following earlier Budget commitments, and the report of a technical working group on implementation issues, the government is introducing legislation to create a new corporation to manage broader public-sector funds.