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The Fraser Institute: Proposed Ontario Pension Plan Will Cost Individual Ontario Workers Thousands Each Year

TORONTO, ONTARIO -- (Marketwired) -- 05/28/14 -- The Ontario government's proposed provincial pension plan could cost individual Ontarians up to $3,420 a year or nearly $7,000 for a working couple, says Philip Cross, former chief economic analyst for Statistics Canada, in an analysis published today by the Fraser Institute.

The analysis, Evaluating the Proposed Ontario Pension Plan, spotlights the cost to individuals, families and the Ontario economy of supplementing the Canada Pension Plan (CPP) with an additional mandatory pension plan for Ontario workers.

"The government's proposal to mandate higher household saving with more mandatory pension taxes will cost millions of Ontarians thousands of dollars," Cross said.

The proposed plan requires workers to contribute 1.9 per cent of their earnings up to $90,000, matched by a 1.9 per cent contribution from employers. Nearly three million workers would be forced to participate. But the cost to employees, notes the study, doesn't stop there.

According to economic theory and extensive literature on pension trends, to pay for their half of the mandatory contribution, employers will cut future wages or other benefits.

"Unless there's an increase in productivity, employers can't suddenly increase compensation to employees unless they raise prices in an increasingly competitive marketplace. However you slice it-lower wages and less hiring, or higher prices at the till-it's bad news for Ontario workers," Cross said.

Cross finds that the plan is based on a fundamental faulty assumption; Ontarians don't save enough for retirement. In reality, Ontarians boast an above-average saving rate, at times double that of the rest of Canada.

Aside from a new costly pension plan, what would improve the retirement savings of Ontarians?

"The best way to increase savings is to foster strong income growth, which allows both spending and saving to increase. Yet the proposed Ontario pension plan will further reduce household income, the amount people voluntary save, and their overall standard of living," Cross said.

Finally, Cross notes flaws in the proposed plan's pension fund, which will be very large, with investments concentrated in fewer areas than an individual's portfolio.

"Its sheer size and concentration will leave the fund vulnerable to a spectacularly poor investment decision, like what happened to the Quebec Pension Plan in 2007, potentially offsetting any gains made by low fund management costs," Cross said.

Philip Cross is in Ottawa and available to media.

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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of think-tanks in 87 countries. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org

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