Recently, the Ontario government has been rumbling about creating a second mandatory pension plan. I flatly refuse to call it the OPP, however! Those letters have been in use for years and immediately bring to mind the image of a we-had-to-buy-it non-aerodynamic car with a strange paint job and multicoloured lights flashing on top. So the first thing the government would have to do is come up with a name that has an available acronym. I was trying to make something from “OPEN” but couldn’t. Maybe OPUS? Ontario Pension Universal Security? Ontario Pension United Savings? Hmmm. I’ll have to work on that. Any way, here’s why I think an Ontario Pension might be a good idea.
CPP of $12,000 Equals Poverty
OK, maybe it doesn’t if you have a fully-paid-off home and some other sources of income. But in general, the CPP is not going to provide enough income for many Canadians to live on with a decent standard of living.
And, even more unnerving, most Canadians are not going to be eligible for the maximum CPP. Right now, the average CPP payment is 60% of the maximum. In July 2013 that meant an **annual** CPP payment of $7234. And yes, that’s taxable income.
I very highly doubt that most average Ontarians know just how little they will get from CPP.
Voluntary Retirement Saving Doesn’t Work
I know the government wants us to be grown-ups and save money ourselves for retirement. That’s why they created RRSPs and perhaps part of why they created TFSAs. They also have talked about another voluntary plan called a Pooled Registered Pension Plan.
[Really. They expect Canadians to feel good investing their own money is something called PRPP. PRPP is a sound a baby makes. It does not inspire confidence. Ontario take note and choose something with a GOOD solid secure sounding acronym!]
Despite having access to RRSPs for decades and TFSAs for years, many Canadians don’t have them maxed out. Yet a maxed out RRSP only reflects a saving of about 18% of a person’s gross earned income per year. For an Ontarian in the 46% tax bracket that means they are only setting aside less than 10% of their net income (if they spend their tax refund.)
Although some of us do max our RRSPs and TFSAs we all know plenty of friends and family who don’t. Voluntary saving becomes optional saving when roofs leak, cars break down, children need braces and wedding bells ring.
We Need Forced Retirement Saving
I’m sure there are many people who will literally scream if they are forced to save for retirement by a mandatory deduction taken off the top of their pay cheques.
Why should I (who have saved for retirement since the day I graduated) have to pay welfare to keep those who didn’t from starving? (Note that I said didn’t not couldn’t. People who are unable to work would not have to contribute to an Ontario pension if it is a payroll deduction.)
If someone wants to argue that the forced savings amount could be obtained by taking it from the taxes we already pay, presumably by reducing the number of tax dollars the Ontario government wastes, I would not argue with that. After all, a billion dollars to cancel a few electricity plants would have topped up quite a few retirement accounts!
Employers Should NOT Have to Contribute
I know the Ontario government hasn’t announced any details yet but I’d like to suggest they do not make employers contribute to this new pension scheme. Payroll taxes and the cost of complying with them are already onerous. Leave this one squarely on the individual. It will also avoid penalizing workers on contract who usually have to pay both the employee and the employer shares of programs like pensions.
What Do You Think?
I imagine the idea of an Ontario Pension program will have both strong supporters and sturdy opposition. Which side do you fall on? Please share your views with a comment.