TORONTO -- Former prime minister Paul Martin, who once called payroll taxes a "cancer" on the economy, joined Ontario Premier Kathleen Wynne on Wednesday to advocate for a provincial pension plan that would require employer and employee contributions.

Increased payroll deductions for a new Ontario Pension Plan could be offset by reductions in premiums for the Employment Insurance program, Martin said at a news conference.

"According to the government's own projections, Employment Insurance premiums are to drop," he said. "If you take a look at that drop and the way in which you could scale up the increase in pension premiums, you can do this without affecting people's take-home pay to any extent."

Business groups, and the federal Conservative government, say the economy can't handle an increase in pension contributions, which they call a job-killing payroll tax.

"Premier Wynne will disadvantage Ontario's businesses with higher payroll taxes, killing jobs and deterring investment," warned the federal Minister of State for Finance Kevin Sorenson in a statement.

But Wynne dismissed the "fragile economy" arguments on pension contributions.

"To frame this as a taxation issue when it is an investment in the future, I think misrepresents the issue," she said.

Wynne announced she had appointed Martin as a special adviser on pensions after the two had an hour-long meeting in the premier's office.

"Mr. Martin will work with the government on a made-in-Ontario solution to enhance retirement income security for the people of Ontario," she said.

Martin said he supported Wynne's decision to go it alone on a new provincial pension plan because the CPP won't provide enough income security for most people.

"For middle-income Canadians, as you project ahead, the Canada Pension Plan is not going to be able to do that which it must," he said. "The role of government is not only to deal with today; it's to deal with the intergenerational inequities that arise when a government doesn't act."

Martin agreed pension income is an economic issue as well as a social one, and said it was "perfectly understandable" that Ontario was going with its own pension plan.

"From an economic point of view, not just a social point of view, if you haven't got confidence in the pensions that you're going to have when you grow older, it's going to affect the economy, your spending and the way you're going to lead your life," he said. "That's why I believe what the premier is contemplating is what's going to be required if Ontario is going to have a strong economy."

Wynne noted that as federal finance minister, Martin was instrumental in the 1997 federal-provincial agreement to reform the CPP, which ensured the plan would be financially sustainable.

The CPP is not enough to guarantee people a secure retirement, added Wynne.

"We're both very disappointed that the Harper government is unwilling to enhance the CPP, but as the federal government steps back, it's our responsibility at the province to step forward," she said. "If we don't act now, too many people will have to live off their savings when they retire, savings they don't have."

Wynne said she wants Ontarians who are working today and their children who are going into the workforce to know that there's a structure in place that will allow them to have a dignified retirement.

"That is the imperative for me, and we know that that's not the case for many of our middle income folks."

Ontario's NDP said the Liberals have been talking pension reform for years but haven't really done anything about it, and weren't impressed with Martin's new role as special pension adviser.

"New Democrats proposed an Ontario Retirement Plan in 2010 where not a single Liberal member voted for it," said NDP finance critic Michael Prue. "The Liberals have a great track record when it comes to announcing panels, and appointing another adviser is just another stalling tactic."