Section E: Strengthening Retirement Security
A Leader in Retirement Income Security
The government is committed to a strong and secure retirement income system to help ensure that Ontarians are better able to enjoy their retirement years. Several studies have shown that, unless action is taken, a significant portion of today’s workers will face a decline in their living standard in retirement.1 These studies also indicate that this problem will likely worsen over time.
As noted in Ontario’s 2014 Budget, the government recognizes that increasing retirement savings in the province is a complex challenge that requires a multi-faceted approach and close collaboration with all parties, including individuals, employers, labour, the financial services industry, and all orders of government. That is why Ontario is continuing with its three-pronged strategy, first outlined in the 2013 Ontario Economic Outlook and Fiscal Review, to strengthen and modernize the retirement income system. This multi-faceted strategy will strengthen the retirement income security of all Ontarians, including:
- Those without workplace pension plans;
- Those with self-directed retirement savings; and
- Those with defined benefit plans.
The Ontario Retirement Pension Plan
Canada’s publicly administered Canada Pension Plan (CPP) is fundamental to the retirement income security of all Canadians, but its benefits are too low to meet the needs of many workers.
Ontario has long played a leadership role in retirement income security and has been advocating for an enhancement to the CPP since 2010.
In 2013, the federal government unilaterally shut down discussion on options for an enhancement to the CPP, against the consensus of provinces and territories to continue working on this issue.
Ontario’s preferred solution remains an enhancement to the CPP; however, the cost of inaction is simply too high. As a result, the government intends to introduce a new mandatory provincial pension plan — the Ontario Retirement Pension Plan (ORPP) — that will offer a secure benefit for life. The implementation of the ORPP is intended to coincide with the expected reductions in Employment Insurance premiums in 2017. TheORPP will be designed to facilitate the possibility of its integration with the CPP, in the event that an agreement is reached on a CPPenhancement.
The ORPP is an integral part of the government’s plan to invest in people, and to help working families build a more secure retirement future.
A provincial pension plan of this scale would be the first of its kind in Canada. Once introduced, the ORPP would be a significant step in addressing the retirement undersaving challenge, particularly for middle-income earners without workplace pension coverage.
As outlined in the 2014 Budget, the ORPP would have the following features:
- Replicate many of the CPP’s design features in order to build on the success of the CPP.
- 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 annual earnings threshold. The ORPPbenefits would be earned as contributions are made to ensure that the system is fair, and younger generations are not burdened with additional costs.
- The ORPP would require equal contributions shared between employers and employees, not exceeding 1.9 per cent each (3.8 per cent combined) on earnings up to a maximum earnings threshold of $90,000 (in 2014 dollars). This threshold would increase every year, consistent with increases to the CPP maximum earnings threshold.
- 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.
- The ORPP would be mandatory for all employees working in Ontario who do not currently benefit from a comparable workplace pension plan.
- 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.
- The ORPP would be publicly administered at arm’s length from government with a strong governance model and be responsible for managing the plan’s investments.
Recognizing that retirement income security is critically important to Ontario families and for the future prosperity of the province, the government is committed to implementing the ORPP as a priority in 2017. Enrolment of employers and employees would occur in stages, beginning with the largest employers, and contribution rates would be phased in over two years.
In June, Premier Kathleen Wynne appointed a new Associate Minister of Finance responsible for the ORPP. The Associate Minister of Finance, the Honourable Mitzie Hunter, has begun to engage a variety of stakeholders — meeting with businesses, labour, organizations, associations, as well as individuals, families and communities across the province — to ensure that the ORPP properly balances retirement income security with the impact on business, and meets the needs of a 21st century workforce.
The government will also be supported by Michael Nobrega in his role as the Implementation Lead, providing guidance and support to the Minister of Finance, the Associate Minister of Finance and Ministry officials on the implementation of the ORPP. In particular, this role will involve providing advice on the creation of the arm’s-length administrative entity and the development of the administrative and operational capacity necessary to ensure a smooth transition to 2017 and manage the ORPP on a long-term basis.
The Province will continue to work with the Technical Advisory Group on Retirement Security, relying on a range of pension expertise and perspectives as it develops the ORPP.
The government intends to introduce legislation shortly to begin the process of fulfilling its commitment to introduce the ORPP and will formally consult on key plan design issues in early 2015. Feedback from the government’s consultations will inform the ORPP’s design and structure.
Pooled Registered Pension Plans
Voluntary savings tools, such as registered retirement savings plans (RRSPs) and pooled registered pension plans (PRPPs), will continue to play an important role in Ontario’s retirement income security system. Pooled registered pension plans will offer employees and the self-employed a voluntary, low-cost, tax-assisted option to increase retirement savings.
After a successful consultation process in early 2014, the 2014 Budget 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 intends to introduce this legislation shortly.
Target Benefit Pension Plans
Ontario’s three-pronged 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 an innovative 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.
As outlined in the 2014 Budget, 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
A Strong Pension Regulator
A key factor in ensuring retirement income security is effective and responsive pension regulation and oversight. The regulator, the Financial Services Commission of Ontario (FSCO) and its Superintendent, must have sufficiently effective powers to ensure compliance with pension minimum standards legislation.
In response to the Report of the Expert Commission on Pensions, in 2010 the government made a number of amendments to the Pension Benefits Act, which have yet to be proclaimed, to expand the Superintendent’s powers. The government intends to move forward with the necessary regulations to proclaim these amendments.
“To bring compliance as near to 100% as can be achieved, the regulator ought to have a number of strategies at its disposal. Disseminating information, dispelling misunderstandings, resolving ambiguities, developing open and cooperative relationships, providing positive incentives for willing compliance and forgiveness for innocent and minor transgressions are — and should be — part of any regulator’s repertoire. Nonetheless, significant and intentional violations will occur and must be dealt with.”
Report of the Expert Commission on Pensions, “A Fine Balance: Safe Pensions, Affordable Plans, Fair Rules,” (2008), 139.
Pension Reforms Underway
The government continues to strengthen and modernize Ontario’s retirement income system through the development of regulations to implement the amendments to the Pension Benefits Act introduced in 2010.
In November 2014, the government passed a regulation to extend the exemption that certain pension plans have from the “solvency concerns” test. This test determines when defined benefit pension plans must file annual valuation reports with the pension regulator. The exemption has now been extended from December 31, 2014, to December 31, 2017, to allow enough time to consult on an appropriate test for those pension plans that are exempt from solvency funding requirements.
In addition, earlier this fall regulatory proposals on the following issues were posted for public consultation:
- Information statements for retired and former pension plan members;
- Disclosure of environmental, social and governance factors in pension investment decisions; and
- The transfer of pension benefits from Ontario registered pension plans to plans in other jurisdictions.
After incorporating feedback, regulations will be considered for approval later this year.
The government continues to work on other areas of reform, including:
- Updating filing requirements to reflect changes to accounting standards: After initial consultations, the government remains committed to implementing the necessary regulatory reforms once it has had an opportunity to incorporate stakeholder feedback.
- Payment of variable benefits directly from defined contribution plans: Initial consultations in April highlighted areas where legislative amendments would be required to promote consistency between the treatment of variable benefits and the current framework for Life Income Funds (LIFs). The government has considered stakeholder responses to the consultation and is proceeding with the necessary amendments to the Pension Benefits Act. The amendments will support greater flexibility, so that retired members receiving variable benefits would have more portability and withdrawal options in dealing with their retirement funds. Once these amendments have been passed, the government will move forward with regulations to implement its commitment to permit direct payments from defined contribution pension plans.
- Exemption from the “30 per cent rule” for pension investments in Ontario infrastructure: As announced in the 2013 Ontario Economic Outlook and Fiscal Review, the government is committed to removing obstacles to investments in Ontario infrastructure by Ontario’s pension plans. The 30 per cent rule limits the ability of pension plans to take large voting interests in a corporation, potentially restricting pension investments in infrastructure projects. With the removal of this restriction, pension plans may represent a significant new source of capital to support economic growth and job creation in Ontario. A description of proposed regulatory amendments providing for an exemption from the 30 per cent rule for pension investments in Ontario infrastructure was posted for consultation earlier this fall. The government will consider stakeholder responses as it develops regulations to implement the proposed exemption.
Sustainable and Cost-Effective Public-Sector Defined Benefit Plans
Pooled Asset Management
The 2014 Budget announced that 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.
The government is working closely with key stakeholders to develop the framework for the pooled asset management entity. The Workplace Safety and Insurance Board and Ontario Pension Board have expressed their interest in being involved as initial participants in the entity.
Framework for Conversion to Jointly Sponsored Pension Plans
The government will facilitate conversions or mergers of employer-sponsored, single-employer pension plans (SEPPs) into new or existing jointly sponsored pension plans (JSPPs). On July 24, Bill 14, the Building Opportunity and Securing Our Future Act (Budget Measures), 2014, received Royal Assent. This legislation makes changes to the Pension Benefits Act that, once proclaimed, will provide authority for regulations to facilitate these transactions.
Work is well underway to develop the necessary regulations required for the legislative provisions to be proclaimed. Issues to be addressed in regulations include the level of consent required for active members and retirees, as well as the degree of protection that employers must provide if the SEPP converts to, or merges with, a JSPP. The government has assigned a high priority to the development of these regulations and intends to post regulatory proposals on the Regulatory Registry in the coming months. Comments received will be considered in the development of the regulations, which are anticipated to take effect on July 1, 2015.
 Recent studies that have examined the adequacy of retirement savings in Canada include: Keith Horner, “Retirement Saving by Canadian Households,” (2009); Kevin D. Moore, William Robson and Alexandre Laurin, C.D. Howe Institute, “Canada’s Looming Retirement Challenge,” (2010); Michael C. Wolfson, “Projecting the Adequacy of Canadians’ Retirement Incomes,” (2011); McKinsey & Company, “Are Canadians Ready for Retirement?” (2012); and CIBC, “Canadians’ Retirement Future: Mind the Gap,” (2013).