ORPP: Cost-benefit Analysis

mistakesThe ORPP: Cost-Benefit Analysis

Just in time for the holidays, the Associate Minister of Finance for Ontario issued the following statement:

“Today, 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.”

Yummy – Cost-Benefit Analysis – Fantastic News!  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.  I suddenly have come to realize that the ORPP must be just like Buckley’s cough syrup – “it taste’s awful, but it works!”

But just for kicks, in between football games on TV and card games with the family at the kitchen table, I decided I would read the Conference Board of Canada report backing the Associate Minister’s claims so that I could see the ‘proof’ for myself.  Many of my readers know that deep inside I am a math nerd and certainly this is going to be a proof for the ages.  Not since Andrew Wiles managed to solve Fermat’s Last Theorem in 1994 has there been such a grand opportunity for the academic community to gain fame solving the seemingly unsolvable.

The report, authored by a group of economists, is a ‘light’ 49 pages including Appendices.  With that said, I could write nearly that number of pages in commentary.  So to keep things brief I will just give you some highlights of assumptions in the report and my questions that should be considered before declaring this proof ironclad.

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”.  Response – 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’?  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.

Report – “Although 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”.  Response – if we have done a good job eliminating poverty among seniors then what problem are we solving anyway?  Do we as taxpayers in Ontario expect every fellow citizen to enjoy the comfortable retirement we afford our school teachers?  What is the standard we are trying to meet?  And by the way – ‘suggest an increased role for government’?  Where is that theorem in economic theory?  One of my favorite economists F.A. Hayek would have reached the opposite conclusion – the data doesn’t suggest we need to do anything – but if we do, individuals should take action appropriate to their goals.  Of course what would Hayek know, as far as I know he only has one Nobel Memorial Prize in Economic Sciences – and he had to share it with Gunnar Myrdal!

Report – “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…{long explanation}…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.”  Response – no, if they are not saving it in an RRSP they are likely paying down a mortgage.  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?  Anyone who took accounting in first year knows that you have fixed costs and variable costs – getting rid of variable costs just means you have to spread the fixed costs over fewer dollars invested.

I am about half way through the report and I am going to stop here.  I might write more in a second instalment but readers probably need to get back to work.  In a nutshell, if you believe the press release this ORPP is a slam dunk golden goose for Ontario taxpayers.  If you dig into the details you see that it is still a crap shoot.

Happy New Year!  I hope 2016 brings you success as you personally define it.



Joe Nunes
Joe Nunes
Joseph Nunes, Co-founder and Executive Chairman of Actuarial Solutions Inc., has practiced in the area of pensions and retiree health plans for over 30 years. He has experience with many types of plans including single-employer, multi-employer, private sector, government, unionized, non-unionized, as well as registered and non-registered executive plans.


  1. Avatar John Dark says:

    Keep it up Joe

    All the best for 2016

    Saskatchewan has lead the way with a precursor for over 20 years – although not mandatory and it’s a fizzle at best


  2. Avatar Jeff Ostrow says:


    Thanks for digging into the assumptions behind the grand statements that this government just can’t stop fantasizing about. I love reading your commentaries. Even though you have a clear anti-orpp sentiment you have always been fair in your analysis and your conclusions are well thought out. Keep up the great work.

  3. Avatar Neil Craig says:

    Happy New Year Joe, nice to know the GDP in 2085 will have gone up. My great grandchildren might actually have something to look forward to assuming my grandchildren haven’t drowned in a sea of debt by then.

  4. Avatar Matthew Williams says:

    Joe, Happy New Year. Indeed, the picture is not all rosy. There are many issues with the ORPP but here’s three to start.
    1. Targeting – a better model would be to allow for auto-enrolment but with the ability to opt out. This would be akin to the NEST system used in the UK. Those near to retirement age may not wish to participate as they are adequately self funded for retirement. Further, those earning less than $25,000 pa should not need to contribute to ORPP.
    2. From a global perspective, governments are reducing their role as both the funding agent and provider of pension services. The Ontario government is increasing its role, not reducing it.
    3. Lastly, I would contend that Canada already has a fragmented retirement savings framework. Think about some of these acronyms – CPP, DC, PRPP, RRSP, TFSA, DPSP and SRPs – to name a few. Adding ORPP only exacerbates the fragmentation and does not harmonize it.

  5. Avatar Pat Johnston says:

    Happy New Year Joe.

    Your analysis on the ORPP has been well thought out and is right on the mark. A major question is whether or not the government should be imposing forced savings on those who don’t already have a company savings plan. Another major question is if such a forced savings plan is necessary (I don’t believe it is), is the ORPP the most efficient method of setting it up? The Ontario government should not be doing this – but on the other hand – there are many other things the Ontario government shouldn’t be doing and this mistake just distracts from all the other things.

  6. Avatar Shawn says:

    I’m not going to pretend that I know about running pensions. My only comment is concerning this note in your analysis … Response – if we have done a good job eliminating poverty among seniors then what problem are we solving anyway?

    That would be the current crop of seniors no? Not the future crop of seniors and this pension plan is an advance attack for for the current group of younger folks who can’t seem to save or think about retirement and don’t have any pension plans defined or other via their jobs. The current crop of seniors is rich almost beyond compare and probably the last generation to be so well off in retirement I had thought? And that has very very much to do with defined benefit pension plans which don’t exist in the same percentages as they used and probably won’t again. The social compact of a company providing you a living over 25+ years in exchange for valued work is also gone. Younger people change jobs much more often than in our day for varied reasons there’s no loyalty from either side of that equation any longer.

  7. Avatar Bob says:

    I wonder if the terms of reference for the report was to be as positive as possible. Some comments

    1. If ORPP was not implemented how would reductions in cost from programs such as EI and WSIB be used, did this money just evaporate and have no impact on our economy or well being?

    2. Reductions in social programs mentions the “claw back” impact but does not mention in this area the impact of reduced GIS/GAINS dollars. I guess this savings just helps government budgets but has no impact.

    3. The cost benefit analysis shows benefit payments against employee contributions but what happened to the employer contributions or the investment return. With individual debt at all time highs could the short term impact of debt reduction be a better long term impact.

    4. For the low income individual in the example, they show a series of benefit payments which produces a higher payout than their contributions. However the GIS reduction equals half the benefit payouts and the contribution to the GIS was 0. Requiring the lower income individuals to contribute reduces their standard of living while expenses are the greatest to give only a small benefit if any when they retire.

    5. Finally, it is interesting one can outline the benefits when we do not even have all the rules.

    too much said already.

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