Time to slay the myth of job-killing pension plans

Powerful interests are counting on public confusion about far-off retirements to sow present-day panic.

Thestar.com
Feb. 9, 2016
By Martin Regg Cohn

With big money at stake in Ontario’s new pension plan, the drumbeat of misinformation is gathering momentum.

Powerfu business interests are counting on public confusion and apathy about far-off retirements to sow present-day panic. Don’t let opposing voices distort the Ontario Retirement Pension Plan (ORPP) without first learning the facts for yourself.

You will hear critics denounce the new ORPP as a “job-killing payroll tax,” borrowing the barbs perfected by the defeated Stephen Harper government. Their claims about the pension, scheduled to be phased in starting next year, are camouflaged in ideology.

Pension premiums aren’t a tax. And they’re not a job killer.

You can look up the definition of taxes in the Oxford Dictionary: “A compulsory contribution to state revenue, levied by government on workers’ income and business profits.”

In fact, taxes are collected by governments to pay for hospitals, schools and police. That’s not how the ORPP is designed.

Despite the myths, pensions aren’t controlled by politicians. Under the laws of this land, all pension premiums - including the ORPP - go directly into a separate (“segregated”) fund managed by an independent entity at “arm’s length” from government.

Pension premiums are invested in diversified funds, relying on future accruals to one day return that money - plus accumulated investment income - to pensioners upon retirement. If workers are getting their money back (and more) without government ever getting close, how is that a tax?

Next question: Are pension premiums really the “job killers” that Harper kept warning of - a claim parroted by his cousins in Ontario’s PC Party, echoed by business lobby groups and repeated in the financial press?

Beyond the rhetoric, bear in mind that economics is an inexact science, vulnerable to many variables (think oil price volatility). Doomsday forecasts aren’t worth the computers they are modelled on.

Remember the cries of alarm from business when Ontario raised the minimum wage in 2014, from a stagnant $10.25 an hour to $11? How many jobs were killed to create the highest minimum wage among Canadian provinces?

In fact, Ontario’s unemployment rate decreased from about 7.5 per cent in late 2013 to 6.7 per cent last month. So much for job-killing scaremongering.

Similarly, when CPP premiums were increased in the 1990s by 75 per cent to shore up our pay-as-you-go Canada Pension Plan in the 1990s, unemployment declined. (Unlike the CPP, Ontario’s plan will be fully funded from inception.)

For those who cling to economic forecasting as an irrefutable truth, let’s look at the research that Harper’s Conservative government tried to suppress a few years ago. A secret 30-page discussion paper prepared for him by federal officials (revealed in a 2012 column) concluded there was nothing to fear from expanding the CPP - at the very time that our then-PM warned of economic peril.

“There would be a short-term negative impact on the economy and employment that would gradually disappear over time,” it argued. “In the long term, an increase in CPP benefits would bring economic benefits by increasing retirement income and consumption possibilities for seniors.”

Unsurprisingly, a recent study of Ontario’s pension conducted by the independent and authoritative Conference Board of Canada reached a similar conclusion: Any minimal impact in early years would be strongly overtaken by future gains.

“The ORPP results in a long-term increase in income that offsets the small negative effect on the Ontario economy over the near-to-medium term.”

It noted that the ORPP is scheduled to be phased in next year (starting with large businesses), precisely when payroll premiums for Employment Insurance and the WSIB will be reduced, mitigating any economic impacts.

“In the long term, the impacts from the ORPP are entirely positive,” the study concluded.

There are many good reasons for a robust pension plan with diversified investments, economies of scale, and a long term planning horizon that ensures people won’t outlive their savings (or end up over-saving for fear of running out of money). The era of stable, lifetime jobs with workplace pensions is ending, replaced by increasingly precarious employment for young people who can’t count on future home equity windfalls to fund their retirement.

RRSPs and tax-free savings accounts remain under-used by most Canadians. A low-interest environment will make it even more difficult for people to manage their investments - no matter how many people write to me saying they magically, consistently, “beat the market.”

ORPP critics have no business profiting from misinformation or banking on public misunderstandings. Like the misapprehension about pension money being diverted into slush funds (tackled in Sunday’s column), it’s time to slay - and lay to rest - the myth of “job-killing payroll taxes.”