Businesses concerned about proposed pension policy

The Peterborough Chamber of Commerce recently had the opportunity to be at the table when Associate Minister of Finance Mitzie Hunter stopped in Peterborough as part of province-wide consultations on the Ontario Retirement Pension Plan (ORPP).  A seat at the table is one way the Chamber of Commerce is able to bring the business message to political leaders.  

The Ontario government lays out the current parameters of the retirement savings plan in its Key Design Questions document:

  • Require equal contributions to be shared between employers and employees not exceeding 1.9 per cent eachOffer a predictable stream of income in retirement for life, and index benefits to inflation
  • Pool longevity and investment risk
  • Aim to replace 15 per cent of an individual’s earnings
  • Require benefits to be earned as contributions are made
  • Require “locked-in” contributions and accumulated benefits

Until February 13, 2015, the Government is looking for feedback on three areas:

  1. The Right Minimum Earnings Threshold
  2. Addressing the Needs of the Self-Employed
  3. Definition of Comparable Workplace Pension Plan

The Chamber Network has serious concerns about what is deemed a “Comparable Workplace Pension Plan”.  Current practice has many private sector businesses offering plans that would be considered incompatible because of how they are set up and managed.  

The Chamber Network has responded to this proposed legislation in a number of ways including the presentation during the consultation process.  To date there have been two conference calls, a letter to Minister Hunter, a Day of Advocacy and a press release asking the legislation be deferred until further information on the economic impact of the plan is acquired. An OCC survey revealed that only 23 per cent of businesses believe they can afford the costs associated with increased employer pension contributions.    

The Peterborough Chamber made three points to the consultation committee:

What it would take an average business to make the money needed to fund the ORPP

For example, a company with 25 employees, each making $40,000 has a payroll of $1,000,000.  The ORPP will add another $19,000 annually to the company’s payroll.  If the company has a profit margin of 4 per cent (which is an average across industry and various sectors), the company will need to sell/provide another $475,000 in products/services to earn that $19,000.  

This leads to other questions such as what happens to businesses that are not able to afford the increase.  Will this force them to consider how they grow, if they grow, and their overall viability?  

The importance of financial literacy 

Future generations must understand the importance of saving for the future.  They must have a fundamental
understanding of financial matters.  The Chamber Network has been lobbying the provincial government to create and add a business course to the curriculum which includes making financial literacy a requirement of high school graduation. This concept is comparable to the graduation requirement of 40 volunteer hours. 

The Chamber Network also has policy recommendations dealing with adult literacy and essential skills. 

Minister Hunter has explained that the issue of improving financial literacy was included in her mandate letter on developing the ORPP from the Premier, so it is on the provincial radar. 

The ORPP is not an isolated cost

The example above dealing with profit margins and what it takes to absorb an increase relates to one increase.  It doesn’t reflect the fact that electricity prices are anticipated to go up 42 per cent over the next several years, that Ontario has high WSIB premiums, that there is slow growth for the foreseeable future, and that municipal taxes go up each year.  While 1.9 per cent employer contribution doesn’t sound
unreasonable on its own, the truth of the matter is that it’s not an increase that is
happening on its own.   

The ORPP has businesses, especially those categorized as small and medium enterprises, very wary.  This is not to say that employers don’t recognize that there is a serious problem at hand.  In a survey by the Ontario Chamber of Commerce (OCC) over 70% of Ontario businesses believe pension reform should be a priority.  The concern is how pension reform is achieved and the effect it will have on Ontario’s economy and future growth.  

Comment through the "Peterborough Chamber" group of LinkedIn.

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