Wynne's pension plan unfair to young workers

Wynne’s ORPP will simply be another government Ponzi scheme that is incredibly unfair to young workers.

(This column originally appeared in the Toronto Sun)

By: Candice Malcolm

Ontario Premier Kathleen Wynne believes the Canada Pension Plan (CPP) is failing Canadians. She’s not entirely wrong. The CPP is failing Canadians, but for completely different reasons than the premier suggests. Whereas Wynne thinks the CPP doesn’t take enough off your paycheque, the real problem is that it’s funding model resembles a (legal) Ponzi scheme.

Young workers stand to lose a significant amount of money through the CPP and it leaves them with little choice about how to invest and enjoy their retirement savings.That is why Wynne’s plan to create an Ontario Ponzi scheme to make up for the shortcomings of the federal Ponzi scheme fails on so many levels.

Wynne’s new pension scheme, the Ontario Registered Pension Plan (ORPP), will force Ontario workers without workplace pensions to contribute 1.9% of their incomes into a pooled retirement fund managed by the provincial government. Employers will also have to pay an additional 1.9% payroll tax to match those contributions. Essentially, the plan is to duplicate the CPP in Ontario and force Ontario workers to contribute to both pension funds.

This is a bad solution, but the premier has at least opened the door to a robust debate about retirement savings and government-managed pensions. There are better solutions to this problem than copying and pasting the CPP into Ontario.

The CPP’s flaws began to show in the 1990s, when it was running out of money. The pay-as-you-go funding model meant young workers were contributing to pay for the benefits of retired Canadians. But as more people retired and began living longer, there wasn’t enough money to meet all the payment obligations. According to a 1993 actuary report detailing the math and funding projections for the CPP, it was predicted the fund would go bankrupt by 2015. Big changes were needed, and the governing federal Liberals decided to hike CPP taxes to make up for the funding gap. In 1994, the typical Canadian paid $806 to the CPP. In 2004, that number had jumped to $1,832. Today, in 2014, we each pay $2,464, matched by our employer.

So we pay three times as much to the CPP as we did two decades ago.

But these increased contributions have not led to more benefits for retirees. The opposite is true. Young workers can expect to lose hundreds of thousands of dollars to the CPP over a lifetime. Based on the current funding model, all Canadian workers born after 1985 will only receive 66 cents on every dollar they would be owed from their CPP investment. While the CPP produces good returns, for young workers almost a third of the value of their contributions goes to pay existing retirees, rather than to their own future pensions.

Can you imagine a bank doing that? Telling you a third of the interest from your savings account will go to pay another customer’s credit card bills? What a raw deal. We are “investing” our money into a sinking ship.

Wynne may have gotten the ball rolling on the discussion of pension reform, but her solution is just more of the same. She is forcing young Ontario workers to double down on a very bad bet. By duplicating the CPP’s pooled saving model, and not allowing Ontario workers to control their own savings, Wynne’s ORPP will simply be another government Ponzi scheme that is incredibly unfair to young workers.