With no immediate or foreseeable future for the expansion of the Canada Pension Plan (CPP), last month, the Ontario Legislative announced the passage of the Building Opportunity and Securing Our Future Act of 2014 and with it, the creation of the Ontario Registered Pension Plan (ORPP). It will be mandatory for Ontarians who currently do not have a workplace pension plan.
The ORPP will require equal contributions from both employees and employers. This plan is intended to expand pension coverage to over 3 million working Ontarians, but is not required for those currently participating in a workplace pension plan. With a goal of creating a system that doesn't burden younger contributing generations with additional costs, benefits to ORPP are earned as contributions are made.
KEY ORPP FEATURES:
There remains a great deal of work in terms of defining the details and administration practices related to the ORPP. Many are divided on their support for the ORPP. While the plan will be financially beneficial to those retiring in 30 years time, it may do little for working Ontarians without a pension plan who are less than ten years away from retirement. Others worry that Ontario remains economically fragile and will not be well served by a mandatory pension plan that pulls an additional 3.8% in contributions away from businesses. Additionally, there is concern about the administration costs for managing ORPP. Operating expenses for the CPP run over $600 million.
Differing opinions are more optimistically oriented to the benefits of the ORPP and carry a view that ORPP offers a fair solution to working Ontarians who increasingly see employers dropping defined benefit plan pensions or pension plans of any type. There is general recognition of the increasing need to help Canadians understand the importance of being financially prepared and saving for retirement especially when many do not have healthy scenarios when in comes to their financial outlook.
As they unfold, understanding the details of the ORPP will be important for Ontario-based employers mandated to participate. Please contact us for updates on ORPP or to learn more ways to enhance your benefits and pension plan offering. We're here to help so that you can focus on what you do best.
Dave Dickinson, B.Comm, CFP, CLU, CHFC
Experienced Benefits Specialist ready to optimize your group benefits and pension plans.