The Ontario Liberals’ new pension idea good, but administratively inefficient

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Last week’s provincial budget introduced a new Ontario pension plan that would augment what is paid by the federal government via the Canadian Pension Plan.

The high-spending budget failed to get NDP approval so the Liberal government will have to defend it in a provincial election. They said they would re-introduce the budget if they win the election.

The Ontario pension will only apply to half of the six-million workers in our province. Excluded are those who have existing employment pension plans and all workers in federally regulated industries including banking, transportation, and telecommunications.

In my opinion the idea is a good one, but unfortunately it seems to be confusing and an administrative mess. It is an extension of the existing federal Canada Pension Plan. If it becomes law, in my opinion, it will most likely be merged into that federal plan within the next five years.

Several provinces have been talking about this additional pension idea. The federal government wanted to delay the plan. They wanted to allow the recovering Canadian economy more time to heal following the recent world recession before imposing additional pension costs on employers and employees.

Ontario had threatened to go it alone if there was a federal government delay. That is what happened last week. This new Ontario pension plan introduced by the Liberal government comes in two parts.

The Ontario Retirement Pension Plan which is aimed at the middle-income workers who are at the greatest risk of having insufficient income during retirement. They will contribute 1.9 per cent of their income to a maximum income of $90,000. Employers will match that contribution. It is a forced savings plan similar to the Canada Pension Plan. A new pension plan management position was introduced for this plan.

The second new initiative is the Pooled Registered Pension Plan. This is a voluntary plan that companies and employees may or may not elect to participate in. It would be administered by private investment firms.

The new Ontario pension plan would begin in 2017 and implemented over a two year period. There are many facets to these two new programs. Most important of all, does it serve the individuals targeted? That answer is an overwhelming yes.

The greatest financial fear for those over age fifty and for many under that age is not having enough income during retirement. Everyone knows how long and expensive life can be. Most are worried about not being able to afford their desired lifestyle.

There is political momentum for governments to implement greater savings. Two other provinces are on the advisory board to design programs and several others have expressed an interest to be involved.

All of this is a continuation of talks the provinces had last year concerning raising pension income for Canadians. So the hold out seems to be Ottawa. The federal government was not against the idea but against the timing of introducing new costs into a fragile economy.

So Ontario has lead the way but they have duplicated the structure, governance and implementation of distributing pension benefits. A good idea but a clumsy effort on the implementation side.

In the cruel world of business, inefficiencies in effort lead organizations to go out of business. That is the beauty of capitalism. It forces companies to be logical, practical and efficient.

Ontario has launched an excellent idea for increasing pensions. However, the duplication of effort with the federal government is inefficient and a mistake.

All governments should not waste taxpayers’ money by being inefficient. Ontario should work with other provinces and the federal government to introduce the same type of pension enhancements, but in a simpler and more cost effective manner.