2016 Ontario Economic Outlook and Fiscal Review
Chapter I: Creating Jobs and Building Prosperity for Everyone

Section D: Strengthening Retirement Security

With two-thirds of Ontario workers not participating in workplace pension plans and many families worried about how they will maintain their standard of living in retirement, the Province has been taking action. Ontario’s leadership on the national stage helped to facilitate a historic agreement to enhance the Canada Pension Plan in a way that will significantly improve retirement security for future generations. This enhancement is just one component of the Province’s strategy to support Ontarians in retirement. The government is also working to ensure that workplace pension plans are strong and new opportunities for savings are available. The strengthening and modernization of the legislative and regulatory framework for workplace pension plans are underway, with a focus on developing a new framework for target benefit multi-employer pension plans and conducting a review of the solvency funding framework for defined benefit pension plans.

The government is committed to ensuring that Ontarians have the tools and resources they need to lead healthy and meaningful lives at all stages, including their retirement years.

Ontarians can take pride in their retirement income security system. The combination of government programs — such as Old Age Security, the Guaranteed Income Supplement and the Canada Pension Plan (CPP) — as well as workplace pension plans and individual savings vehicles, such as registered retirement savings plans, helps Ontarians live with dignity in retirement.

However, the realities of a changing economy present challenges for future retirement security and are already making it increasingly difficult for many to save enough for retirement. Analysis conducted jointly by the federal, provincial and territorial governments found that, without further action, 24 per cent of Canadian families will not have sufficient savings to maintain their standard of living in retirement.1

A number of factors are contributing to this situation.

  • Workplace pension plan coverage has declined. About two decades ago, 58 per cent of Ontario workers did not participate in a workplace pension plan. Today, this has increased to two-thirds, and the situation is worse among younger workers aged 25 to 34, three-quarters of whom do not participate in a workplace pension plan.
  • People are living longer, which means that younger Ontarians will need to save more to have sufficient savings to maintain their standard of living throughout retirement.
  • Low interest rates will make it more difficult for younger Ontarians to achieve, through individual savings, the level of consistent investment returns required to provide for a secure retirement income.

To address these complex challenges, the Province has adopted, and made significant progress on, a multi-pronged strategy that includes:

  • Working with the federal government and the other provinces and territories to enhance the CPP;
  • Strengthening and modernizing workplace pensions;
  • Establishing new opportunities for workplace savings; and
  • Improving consumer protection for individual investors, as detailed in Section A: Fostering a More Innovative and Dynamic Business Environment in this chapter.

Agreement on a Canada Pension Plan Enhancement

Ontario is proud of its central role in achieving a historic agreement among federal, provincial and territorial governments to enhance the CPP.

The CPP has remained largely unchanged for decades.

National discussions about how to enhance the CPP had stalled until 2013, when Premier Kathleen Wynne, as chair of the Council of the Federation, reinvigorated the national conversation. Later that year, tasked by the council to advance work on a CPP enhancement, Ontario Finance Minister Charles Sousa chaired a meeting of his provincial and territorial counterparts that resulted in an agreement on a set of objectives that would underlie a CPP enhancement.

Despite this consensus among provinces and territories to continue the discussions, hopes for a national solution were defeated in December 2013, when the federal government of the day unilaterally shut down discussions.

Faced with an impasse at the national level, Ontario was not prepared to defer taking action.

That is why the Province stepped up to address the retirement savings challenge by announcing in the 2014 Ontario Budget the introduction of a first-of-its-kind provincial pension plan — the Ontario Retirement Pension Plan (ORPP).

Over the next two years, Ontario worked intensively to develop the ORPP and prepare for its implementation, starting in 2018. These steps included:

  • Passing legislation on the design, funding and governance of the ORPP, including the creation of the ORPP Administration Corporation (ORPPAC), responsible for administering the plan;
  • Undertaking extensive consultations with business, industry groups, pension experts and communities on key design features of the ORPP; and
  • Preparing to put in place the administrative systems needed to ensure that the ORPP would begin collecting contributions, starting in 2018.

At the same time, the Province maintained that an enhancement to the CPP remained its priority and preferred approach.

Ontario’s work in advocating for an improvement to the CPP and in moving forward with the ORPP ensured that CPP enhancement remained on the national agenda. In fall 2015, the new federal government restarted national discussions. The knowledge and analysis Ontario gained from developing the ORPP were invaluable in facilitating an agreement in less than a year.

Without Ontario’s leadership and commitment in addressing the retirement income security needs of future generations, this national agreement would not have been possible. The agreement reflects many of the same principles and features as the ORPP and will significantly improve the future retirement security of hardworking Ontarians by:

  • Providing a meaningful increase in future retirement income that is predictable, paid for life and fully indexed to inflation (see Chart 1.4);
  • Ensuring that workers experiencing temporary periods of low earnings and those engaged in part-time employment and multiple jobs would benefit;
  • Having a timely start date of January 1, 2019, with a seven-year phase-in period to allow businesses time to adapt to increased contributions; and
  • Protecting low-income workers through an enhancement to the Working Income Tax Benefit.

Having successfully achieved Ontario’s preferred approach to address the retirement savings challenge, the Province is proposing to repeal the ORPP-related legislation.

Ontario looks forward to continuing to work with governments across the country on the next steps needed to implement the agreement to enhance the CPP.

Strengthening and Modernizing Workplace Pension Plans

While the CPP enhancement represents an important step forward in retirement income security, workplace pension plans remain an integral part of Ontario’s retirement income system. Ontario will continue to strengthen and modernize the legislative and regulatory framework for workplace pension plans to ensure Ontarians have a robust foundation that supports their retirement savings goals.

Strengthening and modernizing workplace pension plans include wide-ranging initiatives, such as the review of the current solvency funding framework for defined benefit (DB) plans; reforms to encourage innovative and flexible retirement savings tools; and policy development and necessary regulations to allow the payment of variable benefits directly from defined contribution (DC) plans. Given the expansion of the DC market, Ontario will also consider the strengths and weaknesses of the existing DC policy and legislative framework.

In addition, Ontario is taking steps to strengthen the oversight of workplace pension plans. Amendments to the Pension Benefits Act have been introduced that would provide the Superintendent of Financial Services with the authority to levy financial penalties, known as administrative monetary penalties, in the pensions sector. The government has also passed regulations that would make it easier for plan beneficiaries to establish pension advisory committees, starting in 2017.

Solvency Funding Review

In recent years, low long-term interest rates have placed funding pressures on pension plan sponsors of single-employer DB pension plans. To assist sponsors in these challenging circumstances, the 2015 Ontario Economic Outlook and Fiscal Review announced the government’s intention to review the current solvency funding framework. The 2016 Ontario Budget announced further details of the review.

The goal of the review is to develop a balanced set of solvency funding reforms that would focus on plan sustainability, affordability and benefit security, taking into account the interests of all pension stakeholders while encouraging sponsors to maintain their DB pension plans. Since initiating the review in fall 2015, the government has engaged in significant consultations with stakeholders. The consultation process has sought feedback through a number of approaches, as well as across all stakeholder groups — including sponsors, unions, members and retirees in both the private and broader public sectors.

Since the 2016 Budget, a stakeholder reference group has been established to ensure that any reforms to the existing framework are informed by a broad range of opinions. Through this group and with the leadership of David Marshall, former president and CEO of the Workplace Safety and Insurance Board (WSIB), roundtable discussions were held with a variety of stakeholder groups in spring and fall 2016. Consultations have also taken place with various professional associations and experts.

In July 2016, the government released a consultation paper seeking written feedback from all interested parties on how best to revise the funding framework for DB pension plans in Ontario. Over 90 submissions were received from individuals and stakeholder groups.

The government will continue to consult with affected stakeholder groups throughout the review of the current framework and in the development of any reforms.

Investment Management Corporation of Ontario

The Investment Management Corporation of Ontario (IMCO) is a non-share capital corporation that will provide investment management services to broader public-sector organizations that choose to become members. The IMCO is intended to deliver enhanced risk-adjusted returns to members by providing greater investment economies of scale and facilitating enhanced access to investment opportunities and world-class expertise.

On July 1, 2016, the Province established the IMCO by proclaiming the Investment Management Corporation of Ontario Act, 2015, into force.

In addition, the government appointed the initial members of the IMCO: the Ontario Pension Board (OPB) and the WSIB. With combined investment assets of approximately $50 billion, these two institutions provide the scale to ensure IMCO’s success.

The initial board has been appointed and will be preparing the IMCO for operations beginning in spring 2017.

New Opportunities for Workplace Savings

Target Benefit Multi-Employer Pension Plans

Target benefit pension plans combine features of DB pension plans and DC pension plans. While they “target” a specific benefit level funded by fixed contributions, accrued benefits may be reduced to address funding shortfalls. Many current multi-employer pension plans (MEPPs) share these characteristics. Ontario is developing a framework that will replace the time-limited funding regulations in place for certain MEPPs, known as specified Ontario multi-employer pension plans (SOMEPPs).

In summer 2015, Ontario released a consultation paper seeking input from affected stakeholders on a proposed regulatory framework for target benefit MEPPs, including a permanent exemption from solvency funding requirements. The paper relied on the current regulations for SOMEPPs as the basis for the proposed target benefit MEPP framework. The paper also explored issues surrounding the feasibility of a framework for target benefit MEPPs outside a unionized environment.

While submissions were supportive of a new framework, including a solvency funding exemption, some concerns were raised that certain MEPPs may face challenges transitioning to a new framework and implementing changes in funding rules.

The government remains committed to implementing a framework for target benefit MEPPs based on the SOMEPP regulations, as well as considering how a framework could be applied outside a unionized environment. The Province will continue to engage with affected stakeholders. It will also consider how a new target benefit MEPP framework would align with any changes to the solvency funding framework for DB plans before finalizing a new approach. Any new target benefit MEPP framework would provide a transition period to allow sufficient time for plans to adjust to the new regime.

Pooled Registered Pension Plans

Pooled registered pension plans (PRPPs) are an innovative savings tool intended to be low cost (achieved through a simple design and economies of scale), professionally managed, and portable from one workplace to another.

The government has long been committed to introducing PRPPs as a means of further strengthening Ontario’s retirement income system by providing employees and the self-employed with an additional voluntary tax-assisted savings tool to help increase retirement savings. On November 8, 2016, the Pooled Registered Pension Plans Act, 2015, was proclaimed into force, fulfilling the 2014 Budget commitment to introduce a PRPP framework that is broadly consistent with the model introduced by the federal government and that of other jurisdictions.

Ontario supports a harmonized framework for multijurisdictional PRPPs. In June 2016, a multilateral agreement was entered into by jurisdictions with PRPP legislation in force to harmonize the administration and supervision of PRPPs across various jurisdictions. It is anticipated that Ontario will sign on to the agreement and the government is actively working with the signatories to do so at the earliest opportunity. Once the agreement is in effect in Ontario, PRPPs can be made available in the province.

[1] Department of Finance Canada, “Backgrounder: Canada Pension Plan (CPP) Enhancement,” (2016), http://www.fin.gc.ca/n16/data/16-113_3-eng.asp.

Chart Description:

Chart 1.4: Illustrations of Maximum Annual Benefit

This chart illustrates the combined annual current Canadian Pension Plan (CPP) and enhanced CPP retirement benefit levels for three levels of steady career earnings. Benefit collection is assumed to begin at age 65. All figures are rounded and expressed in 2016 dollars.

In retirement, a worker with pre-retirement earnings of $15,000 annually would receive an enhanced CPP benefit of about $1,195 annually for life. Combined with the current CPP benefit, the worker would receive about $4,775 annually for life.

In retirement, a worker with pre-retirement earnings of $40,000 annually would receive an enhanced CPP benefit of about $3,185 annually for life. Combined with the current CPP benefit, the worker would receive about $12,735 annually for life.

In retirement, a worker with pre-retirement earnings of $70,000 annually would receive an enhanced CPP benefit of about $6,815 annually for life. Combined with the current CPP benefit, the worker would receive about $19,925 annually for life.

Return to Chart 1.4