Capital accumulation plans (CAPs) already help 2.4 million Ontario workers save for a good retirement and can largely solve the under-saving gap. The proposed Ontario Retirement Pension Plan (ORPP) should therefore not be mandatory for employers who already have a well-designed workplace plan in place for their employees—whether a DC pension plan (DCPP), group RRSP or deferred profit sharing plan (DPSP)—especially if those plans already involve employer contributions that are equal to or greater than the 1.9% rate proposed under the ORPP.

Study after study shows a clear majority of Canadians are financially well-prepared for retirement—according to a recent McKinsey survey, 83% of households, up from 77% in 2012. A study by Jack Mintz done on behalf of the federal-provincial-territorial Ministers of Finance found that 78% of households are set to replace 90% of consumption in retirement. This is thanks to a strong Canadian retirement income system, whose public and private pillars have been in place for decades and work well together.

Read: Most Canadians prepared for retirement

What needs to be addressed is the gap: the 20% or so of mostly middle-income-earning Canadians who aren’t saving enough—especially at work. Saving in a well-designed, professionally-managed workplace retirement savings plan through regular payroll deductions, contributes to much better retirement outcomes for middle-income-earners. The CAP model on which most private sector plans (DCPPs, group RRSPs, etc.) are built has come of age and offers a targeted and timely fix to the under-saving issue. CAP features and outcomes merit a closer look:

  • A Canadian CAP is low cost—according to Dr. Vijay Jog of Carleton University, plans average 0.70% (for both administration and investment management), significantly below the 0.93% fees of much larger U.S. DC plans.
  • Plans typically have strong employer matching contributions—more than 5% for DCPPs and 4% for group RRSPs on average.
  • CAPs are sustainable—they are not sensitive to low-for-long interest rates and improving plan member longevity.
  • CAPs are built on a strong investment platform—they typically provide members with access to pooled funds from Canada’s largest institutional investment managers, many of which are also used in DB plans.
  • Most importantly, CAPs work—according to McKinsey, 84% of mid-to-high income households with a DCPP or group RRSP and a total contribution rate of 6% or more are retirement ready, versus 63% of households without a workplace plan.

Nearly six million Canadians (2.4 million Ontarians) already benefit from such a workplace plan. We could solve most of the under-saving challenge by extending workplace plan access to all Canadians, notably workers with smaller employers, who don’t have an existing plan.

The Pooled Registered Pension Plan (PRPP) being introduced in Ontario and other provinces is designed to do just that. Coverage would be further boosted by enabling use of the auto-enrollment with opt-out feature in existing plans, similar to the Voluntary Retirement Saving Plan (VRSP) in Quebec (and more recently in Alberta for traditional DCPPs) with proven results internationally. Often, up to half of employees with access to a plan miss out on employer contributions by not being enrolled.

Read: Will employers scrap DC plans because of the ORPP?

We share the Ontario government’s desire to ensure Ontarians are well prepared for retirement. However, not recognizing existing workplace plans as “comparable” (and employers who offer them as exempt from the ORPP) would be counterproductive to the government’s aim in a number of ways:

  • It would punish the many responsible employers who set up good plans and their employees who benefit from those plans.
  • Many employers may not be able to afford to keep existing plans in place while participating in the ORPP. A recent Environics survey shows nearly 80% of employers would consider reducing current plan contributions, and two-thirds would consider eliminating their plans altogether.
  • Rather than generating new savings for people who under-save, the result would be a displacement of existing savings—and likely less overall saving.
  • Ontarians’ retirement savings would be displaced from a low-cost model that works, to a higher-cost model that is yet unproven (the Canada Pension Plan’s all-in costs are above 1%, for a mature plan with well over $200 billion in assets; it would take a very long time for a new plan to achieve, let alone beat that).

It’s difficult to argue that this is in the best interest of Ontario workers. Fortunately, these unintended consequences can be mitigated altogether by recognizing DC pension plans, group RRSPs and PRPPs as “comparable.”

Read: Business, labour groups divided over ORPP

Once that issue has been resolved, all the provinces, including Ontario, have a golden opportunity to solve the under-saving gap—efficiently, effectively and decisively, through targeted measures. That means maximizing access for employees without a workplace plan to PRPPs, and enabling auto-enrollment and auto-escalated increases (with an opt-out) for CAPs generally.

Employers without a workplace retirement savings plan can do their part by offering a solution that makes it easy for employees to save at work, and those with a plan can voice support for increased participation in their existing plans through auto-solutions. Plan sponsors and their providers are ready to work with governments to boost retirement readiness for all Canadians.

Thomas Reid is senior vice-president, group retirement services with Sun Life Financial Canada. The views expressed are those of the author and not necessarily those of Benefits Canada.

Copyright © 2021 Transcontinental Media G.P. Originally published on

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