Hold your own in a Conversation about the Ontario Retirement Pension Plan (ORPP)

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Akiva Stern is Sole Proprietor of HR AID. HR AID is an employment consulting company devoted to helping employees and small business owners easily access employment and labour information as well as helping to resolve their employment issues. Akiva is currently enrolled in the JD/MBA program at the University of Windsor.

 

            So I don’t know about you, but when the government decides to take $3.5 billion of our money every year so they can choose how to spend it, I do a double-take. Naturally, I would much prefer to manage my own finances. With the newly introduced ORPP plan rolling out in Ontario I thought it would be a good idea to break it down for you so you know what’s going on.

 

The Landscape Today 

The act itself rests on a few assumptions about people in Ontario:

  1. People are bad with money. Listed as the very first reason for the plan, the Ontario government cites studies that show that we are not saving enough for retirement.
  2. Employers are getting less and less generous. Gone are the days of defined contribution plans and generous pension programs from employers, save for a few lingering plans from yesteryear. Approximately two-thirds do not have pension plans in Ontario.
  3. More and more workers are in precarious work roles. According to Worker’s Action Centre, one in three jobs in Ontario is temporary, contract, part time or self-employed. This makes it difficult for Ontarian’s to participate in Pension programs. This number is much higher in the GTA.
  4. Traditional Old Age Security (OAS) and Canadian Pension Plans (CPP) are simply not enough. Claiming to be insufficient for middle-income earners in particular.
  5. Longer lifespans, longer career. This is problematic if people are still retiring at the same time as usual but living longer, which they are. Some incentives are provided to stay at work longer, but there is no mandatory retirement anymore, which proves to be problematic since employers can remove benefits at 65. Payouts then increase when you finally decide to head to the cottage for good. If we can afford one that is…

 

Coming to workplaces near you in 2017! 

            The 4-step plan will create a mandatory contribution plan for workplaces that do not currently have a similar or “comparable” plan in place. Both the Employee and Employer will each contribute 1.9% of an employee’s annual income for a total of 3.8% a year towards your pension fund. That is of course capped at employee’s making less than $90,000 per year. Payouts will begin in 2022

Self-employed individuals and Federally regulated employees need not apply since you can’t if you wanted to…

 

What it boils down to

Whether you think this plan is a good idea or not it leaves open a few questions and considerations yet to be answered…

  1. Investing in Ontario. When companies decide where to invest their businesses, i.e. building plants creating jobs etc., they first do a financial assessment of what it will cost to have a business in a particular location. Consider this 3.8% per employee a disincentive for companies to build jobs and careers in Ontario.
  2. Payout Practicality. A pension designed for today’s workforce” The examples given provide employee payouts for a 40 year period. If the plan is implemented now in 2017 (to finish implementation for 2021) for our current demographic, how will all that change by the time the payouts start filing through? Politics, demographics, and the labour environment may all shift creating a plan for the future based on the worker of today.
  3. Pension minimums. The plan seems to gear itself towards middle-income earners. A cap has been placed at $90,000 but I can’t seem to find a minimum. As important as it is to save for the future, this contribution may put a significant strain on low-income earners so perhaps a lower limit will be introduced.
  4. Currently, workers are relying on OAS, CPP, and RRSP plans to cover their retirement savings. Will this forced pension plan make them save more or simply reallocate funds from their RRSP’s to cover the difference? Better yet, will employers reallocate funds in order to compensate for the difference? (This months OSSTF bargaining comes to mind…)
  5. Provincial isolation. If saving for retirement is such an issue why not make a bigger plan using already established programs like CPP and OAS why does the Ontario government need its own plan?
  6. Opting out. Should we at least have the right to our money and an opt out? Why is it mandatory?
  7. Whose investment is it anyway? Take our money, then give it back and it looks like a forced savings plan. Take our money, invest it and show us growth for our pensions and we may be convinced. But take our money and use the interest for your political agenda i.e., “new pools of capital for Ontario-based project such as building roads, bridges and new transit,” and we will start to ask questions.

 

Are you convinced by this plan? Do you think it is a good idea or simply a nicely packaged tax grab? Leave your comments below!

*See The Ontario Retirement Pension Plan: Discussing a Made-in-Ontario Solution.

*See Bill 56 Ontario Retirement Pension Plan Act, 2015

 

*Some exceptions apply; see above link for more details.

**The above is Information regarding Labour and Employment Issues and is not to be considered advice or instructions pertaining to individual or specific employment situations.

 

 

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