Reversing the decline in retirement security
As the westbound Milton GO train eased into Streetsville one winter evening this year, I stood with other homecoming commuters in the car where the conductor assisted passengers. He looked at me, and at the Ontario coat-of-arms pin I wear on the lapel of my winter coat, and said to me, “I think you’re somebody important.”
Not expecting the comment, I paused. The woman standing next to me said to the conductor, “Do you know who this is?” He shook his head.
“This is Bob Delaney, our MPP in Streetsville. He’s going to get us a better pension.”
The other passengers who had heard the exchange chipped in with a brief bit of applause.
The moral of the story: people know that the savings programs available today can’t do the job of helping them save for retirement. They know we have to do better.
This was not an isolated incident. In early February, doing a tele-townhall with other Mississauga MPPs, we asked the 70,000 or so people on the line with us whether Ontario should move ahead with its proposed made-in-Ontario retirement pension plan. A stunning 90 percent agreed. This proportion was consistent with surveys in other areas in which MPPs did pre-Budget consultations. Indeed, the government ran successfully, and was re-elected, on exactly such a commitment in 2014.
Retirement status-quo failing in both Canada and the USA
Half a century ago, in the early to mid-1960s, a Canadian man’s average life expectancy was 68 years, a Canadian woman’s average life expectancy was 74 years. Today, a Canadian male can expect to life to see his 80th birthday; a woman her 84th. Now, as in the 1960s, Canadians were in the world’s top-ten in life expectancy. However, when the Canada Pension Plan (CPP) was first conceived in the 1960s, back when a man tended to retire at about 65, a person’s savings, plus the CPP, plus Old-Age Security (OAS), plus any company pension plan (which was common back then, rare today) might indeed last for the balance of his or her lifetime, including providing for a man’s spouse after his passing.
People saved more a half-century ago as well. Research by CBC News showed that Canadians now save only about four percent of their income, and less than one in four made any contribution at all to a Registered Retirement Savings Plan in the course of a year. Canadians had a staggering $683.6 billion in total unused RRSP “contribution room” as of the end of 2011, an amount accumulating since 1991. Put simply, few Canadians are saving for retirement, and those that are, will outlive their accumulated retirement savings, many in a matter of months, after they stop working.
Many Canadians look for example to the United States. How are they faring in preparing for retirement? Overall, Americans are worse-off than Canadians are, which is really saying something. An eye-popping NBC documentary in 2015 found that almost 40 percent of employees have less than $10,000 saved for their retirement.
“But shifting the responsibility for growing retirement income from employers to individuals has proved problematic for many American workers, particularly in the face of wage stagnation and a lack of investment expertise. For them, the grand 401(k) experiment has been a failure,” says NBC.
And in response, the Ontario Retirement Pension Plan
I spoke on the proposed Ontario Retirement Pension Plan in late February in the Ontario Legislature during debate on the first of a series of legislative changes to implement a made-in-Ontario pension plan. The Province would prefer an enhanced Canada Pension Plan. The federal government has so far flat-out refused to consider modernizing the half-century-old CPP. Here is some of what I said in the Legislature:
“Our country is drifting back a century in time in how we treat our elderly. Our country has not thought through what will happen as the baby boom generation ages and becomes seniors. For every senior alive today, there will be two when most surviving baby boomers themselves move into their senior years. For every octogenarian, a person aged 80 or more, there will be three as our baby boomers move into their 80s. Our nation and our provinces are not ready for this.
“Our youth are pressed for employment in a post-industrial job market, squeezed by high house prices, and find it almost impossible to put away the important early money to generate the savings that they will need to live on at the end of a work life that will likely see them change careers about three times and change jobs every few years.
“Employers in large companies have taken an eye-popping $17 trillion out of the North American economy and stored it offshore in tax havens. It’s time employers put some of what former Bank of Canada Governor Mark Carney called “dead money” back to work, investing in the future of the very people who create value for them. Working men and women need to adopt the imperative of budgeting a thin slice of their own income into a dignified life in their later years.
“That’s what a responsible reform of the Canada Pension Plan should have been about years ago. That’s what enhancements to the Canada Pension Plan should be about today. If we had a responsible federal government in Ottawa, now or in the last generation, building a Canada Pension Plan for the 21st century, it would be done by now. But we have not had such a government in Ottawa.
“That’s why Ontario is building its Ontario Retirement Pension Plan. Ontario needs our people to have a retirement plan that they can rely on. Seniors know that their ability to retire and to live in comfort and dignity is eroding each and every year. Young people know that they need a structure to enable them to save on a regular basis throughout their working careers. The same knowledge- or service-related businesses, whose assets walk out the door every day and go home, know that they need a fair and level playing field to be able to assist their employees with a portable and professionally managed pension plan. Today they don’t have it. That’s the reason why Ontario is introducing the Ontario Retirement Pension Plan: to provide that very level playing field to both employers and employees alike.”
Some key facts
- Relying on the CPP and OAS alone won’t get Ontarians even to an income level of $20,000 in any given year after retirement;
- To maintain something like a similar standard of life at mid-income levels, a person is estimated to need about 70 percent of his or her pre-retirement (before tax) income after leaving work. This means that if your household income was about $70,000, and you feel you need about $50,000 per year to remain comfortable in retirement, then you are $30,000 per year short if all you have after your working life is the CPP and OAS;
- The 2014 Ontario Budget announced plans to move forward with the Ontario Retirement Pension Plan (ORPP), the most significant pension initiative in Canada since the introduction of the Canada Pension Plan in 1966, almost half a century ago;
- For working people not covered by a company pension plan equivalent to or better than the Ontario Retirement Pension Plan, the ORPP would be a mandatory contribution, based on the employee’s income (up to $90,000 per year) of 1.9 percent by each of the employee and the employer to the plan. This would mean the roughly three million working Ontarians currently most at risk of under-saving for their retirement would be able to participate in a workplace pension;
- Like the Canada Pension Plan, which along with other Canadian public-sector pension plans, are among the world’s best-run investments, the ORPP would be administered at arm’s length from government;
- Self-employed individuals would not have to contribute to the ORPP, nor would companies and their employees already participating in workplace pension plans as good as, or better than the ORPP. To benefit from the ORPP, you would need to contribute to it. This is a plan for employees in their early to mid-stages of their careers.
How the ORPP plans to help people in retirement
- Provide a predictable stream of income in retirement, indexed to inflation, and paid for life, similar to the CPP’s retirement benefit;
- Aim to replace about 15 percent of an individual’s earnings, up to a maximum earnings threshold of $90,000;
- Come into being on January 1, 2017.
If the federal government expands the Canada Pension Plan?
The Ontario Retirement Pension Plan is purposely set up to be the same, or functionally equivalent to the Canada Pension Plan in as many respects as possible. A decision of a future government of Canada to bring the Canada Pension Plan into the 21st century would be a wise and far-sighted one, and the Ontario Retirement Pension Plan could conceivably be rolled into an expanded CPP quickly and efficiently.
Summary of pension-related links:
- Ontario Retirement Pension Plan;
- Canada Pension Plan;
- Old Age Security;
- U.S. 401(k) plan (from the U.S. Internal Revenue Service).
News Reports related to pensions:
- CBC News: Retirement savings in Canada;
- NBC News (USA): The Great 401(k) experiment has failed for many Americans;
- The Toronto Star: Corporations’ stockpile of ‘dead money’ tops $500 billion;
- Globe and Mail: Canadian businesses accumulating ‘dead money’ faster than other G7 countries;
- Canadian Business: Canada’s top ‘dead money’ hoarders;
- CBC News: Wealthy hiding $21 trillion in tax havens.