Proposed Ontario Pension Plan Misses the Mark

The Ontario Pension Plan is an important contribution to the debate about retirement security in Canada. The case made for a public initiative to respond to the failure of the private system is well made in the budget, and is overwhelming. Pension coverage in the private sector of only 25%. Exorbitant fees that eat into retirement savings. Inadequate savings for retirement. The litany goes on.

The response, however, is extremely disappointing. The income replacement rate proposed is only 15% — a level that falls far short of filling the gap between the income replacement rate people need in retirement and the amount provided by the current system. Even the premium relief provided for low-income earners completely misses the point.

The budget proposes using the same $3,500 exemption as is used in the CPP – a figure that hasn’t been changed in decades. The problem created for lower-income earners with an expanded CPP is that because of the tax back rates applied to public programs like Old Age Security and the Guaranteed Income Supplement, many low-income earners will get no benefit, despite having made the contributions. PEI recognized this problem in its proposal for an expanded CPP.

It is hard to explain how that point got lost in the transition to an Ontario Pension Plan. It is clear from the budget that the Ontario Pension Plan is just as important as a weapon in Ontario’s war with the Federal government as it is as a signature piece of the 2014 budget.

The budget takes great pains to point the finger at the Federal government for ignoring a provincial consensus in favour of CPP expansion, going as far as to emphasize that the Ontario Pension Plan is a second-best solution.

Economist Hugh Mackenzie is a CCPA Research Associate.

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