The Ontario Retirement Pension Plan

The Ontario government is asking for comment on their proposed government pension plan.  If you paid any attention to the last election, you may recall it was one of the promises.  Unfortunately, they do not intend to break this one.

All government activity has impacts, called tax distortions, in the real world marketplace.   The question becomes are the negative impacts more costly that the benefits are worth?

Objective evidence (StatsCan and McKinsey) suggests that the plan is unneeded and there is no cry from the subjects to have such a plan.  Perhaps there is a message in the tax distortions.

The plan wants to extract 3.8% of wages up to income of $90,000.  The self-employed, presumably unincorporated self-employed, cannot participate and those with a “comparable” defined benefit plan need not participate.  Who remains?  Only those working for small businesses, or businesses who have already dispensed with their defined benefit pension plan.  No government worker would be affected.

The plan says it will provide 15% of average income at 65.  The cost, at the average industrial wage in Canada, is about $1,000 for each of the employee and the employer.

The cost to provide a job to a person in Ontario went up by around 4%.  Seems likely there will be fewer jobs or maybe poorer paying ones.  That is hard on businesses who might like another worker and on young people trying to save for a home or to pay down a mortgage.

Except of course in unionized government jobs where the comparable plan already exists.  Employees in these jobs will have a cost advantage over their brothers in other jobs.  A labour market distortion to no benefit.

While the government of Ontario relies on union support, this is not the only reason they might wish to mandate this plan.

They are running out of ways to get money.  They will have to put government bonds into the plan to make up for the money they take, but that is a little like taking money from your retirement plan to buy a bass boat and then arguing that because you replaced it with an IOU, everything will be fine.  Madness!  I might have a little faith if the plan assets were segregated from government funds, and the plan precluded investment in debt of the government or any of its entities.  Their fiscal accomplishments and attention to financial responsibilities are not up to pension manager standards.

More expensive jobs means fewer jobs.  More money to the government means less for the citizens.  Not socially valuable ideas.

Governments are incentive driven just as the citizens are.  When they do things that provide no benefit to the people, we can assume that the benefit is theirs.  Look for the meaning not the details.  The retirement pension aspect is a shiny object to distract you from the real purpose.


Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

One Comment on “The Ontario Retirement Pension Plan

  1. Luckily for business owners who have set up an INTEGRIS Personal Pension Plan (“PPP”), they won’t have to worry about the ORPP because the INTEGRIS PPP is a defined benefit plan, and thus exempt as a “comparable plan”.

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