A report praising the benefits of the Ontario Retirement Pension Plan should be taken with a grain of salt, says one expert
“In a nutshell, if you believe the press release this ORPP is a slam dunk golden goose for Ontario taxpayers,” says Joe Nunes, president of Actuarial Solutions. “If you dig into the details you see that it is still a crap shoot.”
Recently, the Associate Minister of Finance for Ontario issued the statement that “we fulfilled our legislative requirement to table a cost-benefit analysis of the ORPP. The report is clear – accounting for all factors, it shows Ontarians and the economy will be better off under the ORPP.”
“We ‘will be better off’ — that sounds pretty sexy and when you are ‘accounting for all factors’ it sure sounds like we have mathematical proof that the ORPP is good for us,” says Nunes. “I suddenly have come to realize that the ORPP must be just like Buckley’s cough syrup – ‘it taste’s awful, but it works!’”
According to the Conference Board of Canada report, “although Tax Free Savings Accounts (TFSA) have become a complement to RRSPs as a vehicle for retirement savings in recent years, including them in the analysis has no substantial impact on the picture. While 4.4 million Ontarians held a TFSA, the average value of these savings was only $10,700 per person in 2013.”
“Really? 4.4 million Ontarians are already paying the administrative costs of these 4.4 million accounts and the redundancy of millions of new accounts under the ORPP has no substantial impact?” says Nunes. “These savers have managed to sock away an average of $2,140 a year in the five years following the inception of the program in 2009 but somehow that isn’t material savings when you think about the fact that the ORPP will see a taxpayer earning $50,000 a year socking away almost $900 – plus another $900 from their employer.
“I guess actuaries define materiality differently than the economists,” he says.
The report goes on to say that while the provincial and federal governments have done a good job of eliminating poverty among seniors, “the decline in workplace pension and a lack of private savings suggest an increased role for government.”
“If we have done a good job eliminating poverty among seniors then what problem are we solving anyway?” asks Nunes. “Do we as taxpayers in Ontario expect every fellow citizen to enjoy the comfortable retirement we afford our school teachers?”
F.A. Hayek would have reached the opposite conclusion, says Nunes of his favourite economist.
“The data doesn’t suggest we need to do anything – but if we do,” he says, “individuals should take action appropriate to their goals.”
The report goes on to say that “the ORPP is expected to change the behaviour of economic agents. In this analysis, we considered several distinct responses as a result of the ORPP implementation… However, this reduction in savings does not represent an economic loss: if individuals are not saving this money, they are spending it. As such, the reduction in savings is assumed to result in an increase in consumer expenditures.”
Nunes disagrees.
“If they are not saving it in an RRSP they are likely paying down a mortgage,” he says. “That is the classic discussion each February, contribute to an RRSP or pay the mortgage? You rarely see the advice that you should blow the cash. I think what bugs me most about this part is the admission that after spending the dough to setup the ORPP we are just going to syphon off funds from other accounts that we have already paid to setup?
