Canada Pension Plan reform: Ontario's new pension plan complicates talks

Federal sources say Canada's most populous province has become Ottawa's main challenge in work to gain the required provincial support to expand the Canada Pension Plan.

Ontario's position in the ongoing talks is that it wants reforms to the Canada Pension Program to dovetail with the provincial pension program Ontario has vowed to create.

The province's finance minister says there needs to be "some degree of substantial benefit" from a revamped national pension plan through higher benefits for retirees.

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But replacing more of a retiree's income through the CPP would require increases in premiums paid by employees and employers.

And if the premiums are too high, that reform would likely alienate the provincial governments in British Columbia and Saskatchewan, both of which don't want to see rates rise over concerns about potentially negative ripple effects on small businesses and low-wage earners — further complicating talks about expanding CPP.

Ontario Finance Minister Charles Sousa said he plans to use the Ontario program as the starting point for negotiations to push for timely amendments to the national program. But he added that the province isn't intractable in its position.

"I'm not suggesting that we're going to obstruct CPP enhancement because we're introducing (the Ontario Retirement Pension Plan). We're using ORPP now as a means to have something substantive on the table for other provinces to review and we recognize that other provinces won't go to that extent. So we will work to find a compromise," Sousa said in an interview.

'Ontario's willing to play'

Federal, provincial and territorial finance ministers will meet the third week of June in Vancouver where CPP reform will be a key part of the agenda.

Federal Finance Minister Bill Morneau has said he wants to see a deal for an expanded CPP completed by the end of the calendar year.

Sousa wants to see early action. He said the talks will be for naught if a majority of provinces don't signal their backing for immediate changes to the pension plan at the June meeting.

"Timing is critical and, frankly, it does put everybody on notice that Ontario will work with the federal government, we are working with the federal government, and other provinces to recognize that we have an opportunity to make a deal here. So Ontario's willing to play," he said.

"What we don't want is to go back and have this: 'We'll do CPP enhancement at some time in the future at some amount without real determination.' I want us to have details, I want us to discuss the parameters of what that enhancement will be. And we are prepared to move forward with CPP enhancement in a form that is close to what ORPP is."

Ontario has proposed to almost double the income replacement rate by supplementing CPP benefits that would lead to annual payments of about $25,000 — but which would also require a increase in premiums. The province also wants to see coverage to Ontarians higher up on the income scale by raising the year's maximum pensionable earnings amount, known as the YMPE.

"That's not going to palatable to all provinces. So Ontario is willing to discuss that and have a meeting of the minds as to what amount should be preferable," Sousa said.

First overhaul in 20 years

Since December when the federal and provincial finance ministers last met, political and bureaucratic conversations have been intensifying behind the scenes to garner support for an expanded pension plan. But coming to a consensus has proven difficult.

Morneau spokesman Dan Lauzon said Ontario has always "acted in good faith" from the start of talks around CPP reforms.

"The fact that they argue passionately for the people of Ontario only adds to the discussions both behind the scenes and around the ministers' table," Lauzon said.

"We look forward to a collegial and lively discussion at the upcoming finance ministers' meeting in Vancouver, as we work together to advance retirement security of all Canadians. Ontario's voice is crucial to the success of that meeting."

The finance ministers are scheduled to meet again this coming December where Morneau expects a deal to be finalized.

Changes to the national pension plan require the support of at least seven provinces holding two-thirds the population of the country — a high bar that makes it mathematically difficult to make changes without buy-in from Ontario.

"Were that to happen, then we would not get a national CPP reform," said former Bank of Canada governor David Dodge.

It would be the first major CPP overhaul in almost 20 years after the provinces and federal government agreed to increase premiums in 1997.

Most provinces were ready to agree to an expansion of CPP in 2013. But the previous Conservative government balked at the move, which led the Ontario Liberals to head down the path of their own provincial pension plan. Quebec also has its own provincial pension plan.