On April 14, 2016, Bill 186 - Ontario Registered Pension Plan (ORPP) was introduced and although there are some questions that remain unanswered, there are many aspects of the bill that are known and have been written about. Some would argue that people should have the right to choose how and if they wish to save for retirement while others also worry about the long term impact to Defined Contribution plans. What we know is that the government intends the ORPP to provide Ontarians with a predictable source of retirement income for life. This tenure will depend on how many years the member contributed to the plan and his/her salary throughout those years. The ORPP plans to provide plan members a 15% income replacement rate after 40 years of contributing to the plan. Benefits start at age 65, but could commence as early as age 60 or as late as age 70 (with actuarial adjustments). The first ORPP would begin paying benefits in 2022.
Now with the ORPP bill likely to be passed before the end of this June, there is more certainty about the provincial government's focus on their goals to grow the Ontario economy and create jobs of the future. And based on the Conference Board of Canada's cost benefit analysis conducted by Environics, they see the ORPP as a viable solution given the findings that show over the long term, the ORPP is believed to add billions to the Ontario economy.
We know that the ORPP is not a tax and that funds collected will be used specifically for the contributing members. The ORPP is mandatory for employers WITHOUT a comparable workplace pension plan. Employers will be enrolling in waves starting with the largest employers in 2017 as a first phase. Comparable workplace pension plans that don't meet the minimum benefit and contribution threshold are required to enrol by 2020.
Employer size will be based on the number of T4s that were issues to Ontario employees in 2015.
Both employees and employers will contribute an equal amount, which is capped at 1.9% each on an employee's annual earnings -- more than $3,500 to a maximum of $90,000. An employee is defined as a person employed in Ontario if they report to work, full or part-time, at an employer's establishment in Ontario. This applies to a worker whose salary or hourly wages are paid from an Ontario-based employer, but who is not required to work at an employer's place of business. Every eligible worker aged 18 to 70 in Ontario would be part of the ORPP or a comparable workplace plan.
There is much to know about the ORPP and pension legislation in general. Our goal is to provide our clients and readers with relevant and timely resources. My blogs about the ORPP are no exception. As information became available and the ORPP bill worked its way toward being solidified, I wrote on the topic at several different occasions. For details of these ORPP-related posts, please click on the respective titles:
For additional specifics, please reference:
Details of Proposed Ontario Retirement Pension Plan Legislation
Ontario Retirement Pension Plan,
or contact us. We're here to help so you can focus on what you do best.
What will you be doing this summer?
Recently, I read that Finance Minister Joe Oliver intends to consult experts and stakeholders regarding ways to explore giving people options to boost the Canada Pension Plan (CPP) during the summer of 2015. The issue of enhancements to CPP has been a topic of much debate in recent years as the various political parties wrestle with the best approach for Canadians.
Now, Prime Minister Harper wishes to consider giving us the option of hiking CPP contributions as a way to boost our retirement savings through voluntary add-ons. In the past, it has been the New Democratic Party (NDP) and the Liberals who have waved the flag regarding the need to enhance CPP.
While this debate rages on at a federal level, the necessity of change and helping Canadians save enough for retirement is felt at the provincial level as well. In Ontario, the Ontario Registered Pension Plan (ORPP) legislation was introduced earlier in 2015. I've written on this topic a number of times. See these posts for ORPP details:
The change in the Tories opinion about CPP enhancements has many Canadians and the Progressive Conservative's opponents wondering if their decision has anything to do with the upcoming election. Regardless of their motivation, all of the parties seem onside, at least fundamentally, with the need to expand this greatly valued government-sponsored retirement benefit.
Whether or not these changes will take hold is yet to be seen, but who can fault a government for wanting our retirement system to be among the best in the world?
There never seems to be a panacea to solve this important and much discussed issue, but the reality prevails that Canadians need more options to make saving for retirement as easy and painless as possible. In a world where there are too many distractions lobbying for us to spend our money, creating a nest egg that one can rely on when the time arrives can't be a bad idea.
The debate seems to explode around the concept of forcing Canadians to save. Some would say that if we don't force people to save, they won't. As of March 2015, the maximum monthly payout of CPP is $1,065.00. Will that be enough for retired Canadians to live on?
The announcement from the Harper government is relatively vague, but shows a concern for the topic in a matter that they haven't broached to this extent in the past. Whether you're in favour of boosting the CPP or not, the matter of saving for retirement continues to be a concern. Within group benefit plans, there are lots of options for voluntary contributions such as group RRSPs and TFSAs. The more informed employees are about their choices and the importance of saving, the better the experience for all. We're here to help you create these conversations and build the tools that drive awareness at all levels of your organization. Contact us to help so you can focus on what you do best.
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.
Last Thursday, the provincial budget was unveiled and with it the introduction of the changes to the provincial government including first of its kind in Canada changes that will affect more than three million working Ontarians, many who rely on Canada Pension Plan (CPP), Old Age Security (OAS) and their own savings for retirement income.
Finance Minster Charles Sousa promises that the proposed ORPP would provide a maximum of $25,275 annually to future retirees who are young workers now with a goal of replacing at least 15 percent of their pre-retirement income.
The recommendation for ORPP gained momentum due to the federal government’s rejection of enhancements to CPP as well as the growing concern of Canadians lack of retirement savings.
ORPP targets middle-income earning Ontarians who are most at risk of undersaving and those who don’t have group pension plans through their employer. This cohort represents approximately two-thirds of workers in the province.
The new ORPP plan would be designed with features that mirror elements of the CPP and with the hopes that Canadian workers will be willing to pay now for more income later in life. For existing plan members of a group pension plan, they will not be required to enroll in ORPP.
ORPP is intended to be introduced in 2017 and just in time for expected reductions in Employment Insurance premiums with a two year phase in period.
Under the new ORPP model, contributions for a worker earning $45,000 annually would be $788 and would result in a maximum annual payout of $6,410. For a worker earning $70,000 annually, their ORPP contribution would be $1,263 for a maximum annual payout of $9,970. It is intended that annual contributions would be matched by employers, which would raise approximately $3.5 billion a year for the pension pool. With this contribution matching, there are concerns about the recommendations regarding ORPP including the cost of premiums as employers consider what the additional costs may do to their business and how that may impact jobs.
There are a number of details yet to be ironed out with the pending legislation to create the ORPP, which is intended to be introduced later in 2014.
Please feel free to contact us to learn more about ORPP and other retirement savings vehicles that may suit your goals. 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.