Pending reintroduction of the 2014 Ontario budget heralds emerging funds for real estate investment. After securing a majority in the June 12 provincial election, the returning Liberal government is expected to move forward with plans for an Ontario Retirement Pension Plan (ORPP) and a new asset pooling entity similar to the major investment management corporations that oversee public sector funds in Alberta, British Columbia and Quebec.
Significantly, Premier Kathleen Wynne’s Cabinet now includes Mitzie Hunter in the newly created role of associate minister of finance responsible for the ORPP.
“The government has a majority and it is no longer hypothetical. It is going happen,” says Keith Ambachtsheer, director emeritus of the International Centre for Pension Management at the University of Toronto’s Rotman School of Management.
The budget document originally released on May 1 sets out broad directions for an Ontario-specific pension plan to augment Canada Pension Plan (CPP) benefits now capped at a maximum of $12,500 annually. As proposed, Ontario employees and employers would jointly (and equally) contribute 3.8 per cent of workers’ annual earnings to a ceiling of $3,420. This would become mandatory in the workplaces employing the estimated 1.3 million Ontarians who do not have employer-sponsored pension plans — including more than 75 per cent of all employees in the private sector — but workplaces with comparable existing pension plans could opt out.
“What we are talking about over time is a growing pool of capital that would need to be invested,” observes Daniel Hayhurst, a partner and head of the pension group with Gowling Lafleur Henderson LLP.
The budget document also outlines future legislation to create a new investment agency that would work with a large pool of capital garnered from various pension plans and endowment funds in Ontario’s broader public service. The Workplace Safety and Insurance Board and the Ontario Pension Board, each with assets of about $20 billion, are identified as the first willing pool participants. Others would be urged to join voluntarily.
“Just the two of them would take it up to $40 billion,” Ambachtsheer notes.
Adding in the pension plans of hydro agencies such as Hydro One, Ontario Power Generation and the Ontario Power Authority and Ontario-based colleges and universities could double that tally. Contributing participants would then benefit from the collective scale and resulting stability that enable a greater degree of investment in the so-called alternative asset classes of real estate, infrastructure and private equity, which deliver higher or long-term returns.
“Various pots of money in the public sector would have access to professional investment management at very low cost,” Hayhurst adds. “There could be a lot of money coming into this pool very fast.”
Equivalents in less populous provinces — Caisse de dépôt et placement du Québec, the British Columbia Investment Management Corporation and the Alberta Investment Management Corporation — ranked second, fourth and eighth respectively in a 2013 study of Canada’s top 10 pension funds. The Boston Consulting Group study also reported that the top 10 held $100 billion in alternative asset classes within Canada, while four were among the top 20 global investors in commercial real estate.
“A new Ontario fund as a real estate buyer would be a long-term investor, which makes for a more stable real estate market,” says Michael Brooks, president and CEO of the Real Property Association of Canada (REALpac). “There would also be more opportunities for real estate professionals.”
Pension experts theorize it would be reasonable for ORPP funds to be rolled into this larger asset pooling entity, but such details are a long way from finalized. Extensive stakeholder and public consultation are anticipated in the coming months as the government targets a 2017 launch for the pension plan.
Opposition is rallying, with the Canadian Federation of Independent Business (CFIB) notably issuing a statement even in advance of the budget to condemn the governments of Ontario, Manitoba and Prince Edward Island for supporting the concept of either enhanced CPP or an Ontario-specific plan.
“These provinces are going against common sense — and contrary to the wishes of Canadians — by pursuing a plan that will be worse than a CPP hike,” CFIB president Dan Kelly stated.
The Ontario Chamber of Commerce and the Certified General Accountants of Ontario issued a joint report earlier in the spring favouring the option for pooled registered pension plans (PRPPs) ahead of an Ontario pension plan. This approach gives employers the voluntary option to match their employees’ contributions and also allows employees to opt out in favour of their own self-directed savings.
Federal legislation introduced in 2011 enabled PRPPs in federally regulated workplaces, while Quebec’s Voluntary Retirement Savings Plan Act took effect on July 1, 2014 to enact a similar instrument in that province’s workplaces. The 2014 budget document indicates Ontario is planning to follow suit, stating “the government has decided to move forward with a legislative framework for PRPPs that is broadly consistent with the model introduced by the federal government and adopted by various provinces.”
If adopted, PRPPs could be one of the allowable alternatives to the ORPP, although employers would presumably have to match employees’ contributions to qualify. Either way, employers in the real estate sector are likely to be among those faced with new costs.
“There are few organizations offering any kind of pension in construction and property other than client-side or public sector. Those that do are generally much larger organizations,” says Nicola Denning, director, construction and property, with Hays Specialist Recruitment (Canada) Inc. “More private sector companies are looking at matching RSP contributions, but they are still a minority in the industry.”
Yet, that may simply reflect employees’ preferences for other types of compensation.
“A pension would be a bonus, but not a deal breaker if there isn’t one,” she maintains. “In my opinion, it’s not as important as having a higher salary, health and dental benefits and performance-related bonuses.”
Barbara Carss is editor-in-chief of Canadian Property Management.
