Advertisement
If Ontario implements its new provincial pension plan, many residents won’t have to save a cent for retirement
By 2017, all Ontario employees could have access to a secure defined benefit pension plan, thanks to new legislation being tabled by the provincial Liberals. The Ontario Registered Pension Plan (ORPP) is Premier Kathleen Wynne’s response to the federal Conservatives’ decision not to enhance CPP.
Some fear the plan’s mandatory contributions would handcuff investors’ autonomy, and leave already stretched workers and employers short on cash. However, it would achieve its ultimate goal: If the plan is implemented as proposed, many Ontarians will find that they don’t have to save for retirement on their own at all.
The ORPP will require all employees in the province not already enrolled in a comparable workplace plan to sock away 1.9% of earnings (on their first $90,000) in a professionally managed, low-cost fund. Employers will have to kick in 1.9% as well.
66%
Workers in Ontario not enrolled in a workplace pension plan
Source: Ontario Ministry of Finance
“I think a mandatory savings program makes sense,” says pension policy expert Bob Baldwin. But he’s less sure the province will be able to deliver on its promise of predictable benefits, indexed to inflation.
Under the plan, a worker making $70,000 would get a retirement income of $9,970 a year for life, and that’s on top of payments from the Canada Pension Plan (CPP) and Old Age Security (OAS). Combined, the ORPP, CPP and OAS could theoretically replace 55% of a middle-class retiree’s pre-retirement income. That’s enough to maintain almost the same standard of living they enjoyed while they were working, due to lower living costs in retirement.
The problem is, salaries could suffer as employers struggle to top up workers’ ORPP accounts. “Most employers can’t afford to pay the 1.9%,” says Baldwin. “That will lead to lower wages down the road.” As well, Ontarians will have less control over their retirement savings and how they are invested.
Baldwin, for one, says that could actually be a benefit though, as it will make workers less reliant on overpriced mutual funds and expensive advisers. “The return on investment will be better than with the typical RRSP,” he says, “due to the lower costs.”
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
Practical advice on how to build your retirement savings for employees at mid-career, the self-employed, single parents and more.
Here’s how Canada’s Old Age Security pension works, who’s eligible for OAS, when you can start receiving OAS, and...
Here’s how Canada’s retirement pension plan works, who’s eligible for CPP, when you can start receiving CPP, and CPP...
While not guaranteed like an annuity, MyRetirementIncome is a flexible and simple financial product for those needing to convert...
A Certified Financial Planner provides perspective on the TFSA vs. RRSP question for a couple in their late 50s...
In retirement, some income is not subject to withholding tax, and you may potentially owe tax after filing each...
From legislative changes to economic trends and consumer behaviours, here are 25 financial highlights that defined the last two...
With a mix of pension benefits, registered accounts and other assets, it’s entirely possible to build a comfortable retirement.
Do Canadians need to consolidate RRSP accounts before converting to RRIFs? Find out this and more.
How much money do you need to retire in Canada, and what sources of income can you rely on...