Ontario's Retirement Pension Plan: how would it work?

Often considered an issue that only engages politics at the federal level, pensions have dominated much of the early debate so far in the Ontario provincial election.

• Ontario Votes 2014: Full coverage

The reason is a proposal put forward by Liberal Leader Kathleen Wynne to create a made-in-Ontario pension called the Ontario Retirement Pension Plan (ORPP) to supplement the Canada Pension Plan.

Here's an explainer on how such a plan would function, and how it's shaping the early days of the campaign.

How would it work?

Workers would kick in 1.9 per cent of their annual income up to $90,000 a year, a contribution employers would match. The money pool these contributions create (about $3.5 billion according to government estimates) will be invested by a board operating "at arm's length" from government. The program would be mandatory except for the self-employed, those already enrolled in workplace pension plans, and those in federally regulated industries, such as banking. Workers could start collecting benefits at age 65. The government said the program will be phased in stages and start with the largest employers.

Why is it needed?

The Liberals believe the Canada Pension Plan falls short in meeting the retirement needs of many Ontarians, particularly middle-income earners. The Liberals warn that if this isn't fixed, many seniors will face a reduced standard of living in their retirement years. The budget document outlines a host of reasons for this, ones that will be familiar to anyone who's read a story about Canadian pensions recently: people aren't saving enough, they're living longer and many don't have workplace pension plans. The key point is that the maximum CPP benefit is just under $12,500 a year, though the average CPP benefit paid out is about $6,800. Wynne has blamed the federal government for not making needed enhancements to CPP, forcing her to act.

How much of a difference could this make?

Liberal budget documents point to three case studies to illustrate how much in benefits the ORPP would generate each year. These are based on workers who've worked for 40 working years and retired at 65.

• A worker who earned $45,000 over that period would collect $17,090 annually (including $10,680 from CPP).
• A worker who earned $70,000 over that period would collect $22,430 ($12,460 from CPP).
• A worker who earned $90,000 over that period would collect $25,275 ($12,460 from CPP).

The figures above are before-tax earnings in 2014 dollars.

What's the response to Wynne's idea?

In launching her campaign, Wynne said a provincial pension plan is needed because the Harper Conservatives have failed to enhance CPP to reflect today's economic and demographic realities.

That set off a war of words between Wynne and Ottawa. Federal Finance Minister Joe Oliver had this to say about the plan on Monday: "It's not the time, in my opinion, to impose this type of tax when the Ontario economy is so fragile."

Ontario Progressive Conservative Leader Tim Hudak said the ORPP is a "payroll tax" that will kill jobs. The Ontario NDP says Wynne's proposal won't help enough people and want to see an increase to the maximum amount provided by the Pension Benefits Guarantee Fund, which provides protection from insolvent defined-benefit pension plans.