From the Ontario perspective, the agreement in principle to enhance the Canada Pension Plan is a good thing for business. The solution is one that will still have impact, but less so than what we were facing here in Ontario.
According to Ontario Finance Minister Charles Sousa, this will be the end of the Ontario Retirement Pension Plan (ORPP), should the agreement be ratified by July 15, 2016. If that happens, there will not be a new 1.9 percent payroll tax. It means the government administration required to manage the ORPP will no longer be needed. It means that small businesses in Ontario will not have to add a line to their payroll deductions. It means that a province-by-province approach to pension reform is avoided and that would have been a costly venture.
“A province-by-province approach would have increased regulatory fragmentation and thus administrative burden. Ontario is doing the right thing by moving away from the ORPP in order to support a coordinated solution,” said Allan O’Dette, President & CEO, Ontario Chamber of Commerce.
The devil is in the details. The nine ministers have agreed in principal to the following:
- The income replacement level will be increased to one third of income
- The upper earnings limit will be targeted at $82,700 upon full implementation in 2025
- There will be a gradual 7-year phase-in beginning on January 1, 2019 consisting of:
- A 5-year contribution rate phase-in below the Yearly Maximum Pensionable Earnings (YMPE), followed by:
- A 2-year phase-in of the upper earnings limit
- An increase to the Working Income Tax Benefit (WITB) to help low-income earners
- Tax deductibility for the enhanced portion of the employee CPP contributions
The Peterborough Chamber was very vocal in presenting the impact of ORPP to the provincial government through presentations to the Associate Minister of Finance and letters to the Minister of Finance. Through the Ontario Chamber of Commerce, the Chamber Network was able to delay proposed implementation of the ORPP by one year to 2018.
Both the Peterborough and Kingston Chambers of Commerce were at the leading edge of pension reform when recommendations were submitted to government in 2015 asking that employees be allowed to contribute up to 1.9% more to CPP. The goal of the recommendations was to see an enhanced CPP in order to avoid a piecemeal province-by-province approach.
When the CPP enhancement is fully phased-in by 2025 the total increase in CPP contributions by employees and employers will be 1%, which is almost half the ORPP.
“While we were hoping to see little or no impact on businesses, we are glad to see that consideration has been given to the need for a long phase-in period,” said Stuart Harrison, President & CEO, Peterborough Chamber of Commerce. “The ability for businesses to prepare and understand changes is paramount to ensuring Ontario stays competitive.”
The ministers also agreed to three measures for implementation:
- introducing a long and gradual phase-in starting on January 1, 2019 that will allow more time for businesses to adjust
- enhancing the federal Working Income Benefit as a means of offsetting the impact of increased contributions on low-income workers
- providing a tax deduction - instead of a tax credit - for employee contributions associated with the enhanced portion of CPP in order to avoid increasing the after-tax cost of saving for Canadians
The Canadian Chamber of Commerce (CCC) still has concerns about the cost of the program and impact the plan will have on cash flow and business investment. However, because the business community has been at the table for the breadth of the discussion around pension reform, we hope to continue to work with the federal and provincial governments as they move forward.
Quebec and Manitoba are the only provinces not to sign on. Quebec is interested in some enhancement that works better with the Quebec Pension Plan.
The goal is to have the plan ratified by Friday, July 15, 2016.