Pension Update: More about the Ontario Retirement Pension Plan

Despite a federal Liberal majority in the fall, the provincial Liberals are moving full steam ahead with the Ontario Retirement Pension Plan (ORPP). Ontario Finance Minister Charles Sousa said Ontarians can’t afford to wait years for a national consensus on CPP expansion. Ontarians need a solution to the looming retirement crisis now.

Last year we wrote about the consultation paper released by the provincial Liberals, which included details on the coverage of self-employed individuals and low-income earners. The provincial Liberals released further details on the ORPP in January 2016. The ORPP was supposed to come into effect  in phases starting January 1, 2017, but due to the possibility of CPP expansion, it’s being delayed until January 1, 2018. The ORPP will offer a maximum pension of $12,816 per year to four million Ontario workers without a comparable workplace pension plan. This would be in addition to the maximum $13,110 per year Ontarians could be entitled to under the CPP.

Working LaptopThe ORPP provides better coverage for high-income earners. While the CPP only covers $54,900 of pensionable earnings, the ORPP covers up to $90,000 in pensionable earnings. Something else that sets the ORPP apart from its federal counterpart is that the ORPP will offer a lump sum payout to the surviving spouse of a member that dies before retirement. Similar to the CPP, the surviving spouse would be entitled to 60 percent of a member’s pension who dies in retirement. If you’re a plan member without a spouse, you can choose a pension with a 10 year guarantee and designate a beneficiary.

Other details released about the ORPP includes a comparability test for employers to figure out if they are exempt from the ORPP. The comparability test will take place at the level of subset of employees to account for the difference in benefits between part-time and full-time.

Although workplace pension plans in Ontario have immediate vesting, employers can still put in place waiting periods of up to two years to join the pension plan. However, once the ORPP comes into effect, employees and employers are required to pay into the ORPP during the waiting period. In light of these new details, if you’re an employer who offers a pension plan with a waiting period, it’s worth considering abandoning the waiting period to avoid joining the ORPP.

In addition, there’s also an option for employers to opt-in to the ORPP if they already offer a comparable workplace pension plan starting in January 1, 2020. For plans with voluntary contributions, those contributions won’t be used as part of the comparability test.

The added cost of the ORPP couldn’t come at a worse time when economic growth is slowing. This has a lot of employers concerned about management fees and administrative costs. Although the provincial Liberals wouldn’t get into specifics, they did say the fees of the ORPP would be “in line” with comparable plans.

Ontario Premier Kathleen Wynne reiterated that she is most concerned about workers between the ages of 25 and 34. Three quarters of younger workers don’t have a comparable workplace pension plan, compared to half of workers between the ages of 45 and 54.

With the first phase for the ORPP coming into effect January 1, 2018, it’s important for employers in Ontario to sit down and figure out a pension strategy going forward. You can read further details about the ORPP additional design details here.

Written by Sean Cooper

Sean Cooper is a Pension Analyst with a global pension and benefits consulting firm. He is a financial journalist with articles featured in major publications, including the Toronto Star, the Globe and Mail and MoneySense. His areas of expertise include pensions, retirement and health benefits. He has made several media appearances, including Bell Media, Newstalk 1010 and CTV. Follow Sean on Twitter @SeanCooperWrite and check out his personal finance blog at www.seancooperwriter.com.

6 Responses to Pension Update: More about the Ontario Retirement Pension Plan

  1. Something the federal government could do right away to help todays and future retirees is boost significantly the OAS.We wouldn’t have to wait thirty years to see the benefit and this would be a stimulus as it would immediately go back into the economy. How to pay for such a thing? Let’s take a look at TSFA’s. They were supposed to be set up to allow for saving without taxation but now we have people with tens even hundreds of thousands of dollars not only tax free but also not applied to our benefit programs such as OAS and GIS, programs that are supposed to be income tested in other words for the benefit of those that need them the most. Use the amounts in TSFA’s against these means tested programs and TSFA’s are still providing what the were set up for in the beginning.

  2. Hi. Am 59 this year. I do not have a work place pension. Will contine to work full time until 65plus. How does my age group fit into the ontario plan??? Kelly

  3. Sean,

    Isn’t the issue that people can’t prepare for their own retirement other than a “granny state” where someone else takes care of everyone’s money problems?

    People can’t prepare due to a combination of not enough money and education while earning money?

    Retirees don’t have enough education of enough money once they have retired.

    Maybe living too long is a problem that could also be addressed? ☺

    The CPP & OAS & GIS combinations were intended as “blue sky” solutions to living longer after mandatory retirement. Adding another component to the current 3 programs will not solve the retirement problem.

    But another payroll tax will definitely hurt those of the 99% who will now have less disposable cash (for emergency funds?), also their employers who will have less immediate profits (and less government income) and more advantageous competitors in other jurisdictions.

    Education is the answer. Might also consider a new sin tax to pay for OAS & GIS.

    • Lower the claw back threshold from 73K down to about 35K and provide some extra allowance for single/widowed seniors.

      At 73K we are just giving seniors money to live very well…. cruises etc.

      Two seniors each with 65K of income plus each receiving OAS are living extremely well and are not in need of welfare from the taxpayer. We’re adding 2 over age 65 people to OAS everyday in Canada for every one that dies. We can’t afford this and its ridiculous giving 95% of seniors welfare. Only 4% are in claw back territory and 1% beyond it.

  4. So people who planned properly and saved for years have to be forced to save more? This is to equal out the people who spend every nickel they get their hands on? How is that fair?

    There should be a 2 tier system. One for people who saved properly and one for people who don’t!

    • Peter, there’s the GIS to assist people whose retirement income is too low.

      But most governments see increased taxation (ORPP in this case) as the issue to everything, any kind of problem. Remember that this new program affects Ontario employers also.

      When people start to collect this additional pension income, it will be heavily taxed, as are the OAS, CPP.

      Those of us who were diligent about our retirement plans are still ahead of the game, but the process is just a little more difficult.

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