Scrap ORPP, but expand CPP, says Mintz

The ORPP is “a harebrained idea,” says Dr. Jack Mintz, economist and fellow at the University of Calgary.

Speaking at the 2015 PMAC National Conference and Annual Meeting, Mintz calls the Ontario Retirement Pension Plan “an intrusive plan predicated on the belief that Ontarians do not save enough. There is no evidence that is the general case.”

He says his 2009 literature review for Canadian ministers of finance found that almost 80% of Canadians had adequate retirement income, though he notes single seniors have a poverty rate of about 20%.

And, the ORPP would be expensive to administer. Benefits Canada contributor Joe Nunes also made this point in an August editorial, saying, “Because Ontario is travelling this road alone, there’s no opportunity to leverage the infrastructure the federal government has put in place for the CPP—an infrastructure that allows for collecting and investing contributions as well as determining and paying benefits. […] It takes [at least] $600 million a year to run the CPP.”

Read: Workers prefer RRSPs, TFSAs over CPP

Worse, says Mintz, “taxpayers will be on the hook for any pension deficits arising from poor financial returns and future liabilities.” A national pension plan is better, he says, because it spreads the risk across a larger population.

So, he suggests Canada expand CPP instead. To do this, he recommends the government:

• Raise pensionable income to $60,000 for a single person, and $120,000 for joint earners. This isn’t much of a stretch: in 2016, the maximum will be $54,900.
• Raise the replacement income ratio to 35%, from 25%. That would put maximum benefits at $19,000, plus $7,200 from OAS.
• Raise the spousal benefit to 100%, from 60%.
• Make CPP/QPP contributions deductible from income, and do not include CPP/QPP in income-tested benefits (i.e., GIS and OAS).
• Increase GIS for single seniors (a promise the Liberals made in the last election).
• Raise the CPP eligibility age to 67.

“ORRP is not the right way to go and should be disbanded,” he says. “CPP reform is much more sensible.” And if provinces won’t buy into the plan, he says the government could raise RRSP contribution limits and make CPP contributions tax-deductible without provincial cooperation. He also suggests the government could offer a TFSA investment grant for low-income earners, with a clawback if funds are withdrawn prior to retirement.

Pensionizing income

One audience member, Mike Philbrick of ReSolve Asset Management, noted in the Q&A that pensions have their merits: “By pooling risk via a pension vehicle, we all need to save less in order to meet our retirement goals,” he tweeted. Further, when he’s making a retirement plan for one person, he must account for a 95% risk of ruin, since that single person bears all investment and inflation risk. When many people join a pension, he says, a manager would only have to plan for a 50% to 55% risk of ruin.

For more from Dr. Jack Mintz, see our live tweets below. And, follow @advisorca for more news and event coverage.

Live tweets from 2015 PMAC National Conference

We’re live tweeting from @jackmintz’s speech about #ORPP at the @PMACNews conference. @BenCanMag

Retirement income policy should be evidence-based, but most Canadians have adequate retirement income. We don’t have a pension crisis, says @jackmintz.

Home equity that’s held by Canadians is bigger on after-tax basis than registered accounts and TFSAs, says @jackmintz #orpp

People say, anecdotally, that they’re afraid of not having enough money in retirement. But those anecdotes aren’t facts, says @jackmintz. In fact, Canadians save enough, he adds. And some people may save too much and may be too risk averse.

Mintz: Little is known about why a minority of Canadians haven’t saved enough for retirement. @PMACnews There’s a 20% poverty rate among single seniors, which is concerning, concedes Mintz. @PMACnews (Read: Offer to help overspending clients)

People are living longer, he adds, but may also experience long illnesses in old age. Those illnesses will be expensive @jackmintz (For more, read: Make way for centenarians)

#ORPP is a harebrained idea, says @jackmintz. That’s because #orpp is an intrusive plan based on the assumption that Ontarians don’t save enough. But there’s no evidence for that assumption, says @jackmintz.

The problem is people who have to pay into #orpp will have less money available to buy homes, and home equity is important to building wealth, says @jackmintz. Further, #orpp will be expensive to administer because people will move in and out of provinces. Taxpayers will be on the hook for shortfalls.

The Ontario economy is already weak, he notes. And, #orpp will disrupt labour markets because people may move in or out as a result of its implementation, says @jackmintz.

.@jackmintz also suggests other options like a TFSA investment grant for low-income folks, with a clawback if funds are withdrawn prior to retirement. And, there could be larger tax credits for health expenses for seniors, says @jackmintz @PMACnews.

A PRPP with potential government involvement would make more sense, says @jackmintz.

.@jackmintz Ontario taxpayers have to bear risk if #orpp has shortfall. That’s why national plan better. Spreads risk.

Audience member says when he’s planning for a large group, only have to plan to 50th percentile. Individual, plan to 95th percentile

.@jackmintz says audience member is right that pooling risk is good aspect of pensions. DB plans also help companies retain staff

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.