Ontario Retirement Pension Plan
On July 14, 2014, the Ontario Government reintroduced its budget originally tabled in May 2014. The budget included a number of pension reforms including the announcement of a mandatory pension plan, the Ontario Retirement Pension Plan (ORPP). Below are some key features from the ORPP, as outlined in the budget; more details will be released in the later part of 2014 before legislation is introduced.
- The ORPP will be introduced in stages starting in 2017, beginning with larger employers.
- Employers and employees will each be required to make contributions of 1.9% (3.8% combined) on earnings up to a maximum of $90,000 annually. These contributions will be phased in over 2 years.
- Similar to CPP maximum earnings, the maximum earnings threshold for the ORPP will increase annually.
- If an employer currently offers a “comparable pension plan” and the employee is participating in this pension plan, they will not be required to enroll into the ORPP.
- The Ontario government will consult on an exemption threshold for low income earners; it may be similar to the Canada Pension Plan (CPP).
- The ORPP will be put in place to target an income replacement rate of 15% of an individual's earnings, to the maximum earnings threshold (see illustration below).
- The ORPP will operate at arm’s length from the Ontario government.
- Delivery of the retirement benefit will be similar to the CPP.
- The Ontario government will continue to consult on how to best support self-employed individuals save for retirement.
Some questions that still need to be answered by the government:
- What would happen if an employer offers a voluntary group retirement savings plan, but the employee chooses not to participate? Would the employee have to join the ORPP, obligating the employer and employee to contribute to the ORPP?
- Can an employee opt to enroll into the ORPP when they are members of an existing plan?
- Will contributions to an individual Registered Retirement Savings Plan (RRSP) exempt an individual from participating in the ORPP?
(IIlustration from the Ontario Ministry of Finance website)