What you need to know about the Ontario Retirement Pension Plan

The Ontario Retirement Pension Plan is a new, provincially managed pension plan being created for residents of Ontario. It is intended to cover people who don’t have workplace pension plans, giving them extra income in retirement. The province estimates about 3.5 million workers will participate.

The ORPP is similar in many ways to the Canada Pension Plan. It requires contributions from workers through payroll deductions, as well as matching contributions from employers. It will pay a benefit in retirement that will vary, depending on how many years an employee contributes to the plan and how much he or she earns.

Yes. The ORPP is intended as a supplement to the CPP for workers who don’t have workplace pensions.

The government says the ORPP is being designed to provide roughly 15 per cent of a worker’s pre-retirement income up to a maximum cap, which is similar to the target goal for CPP payments. That means the two payments could be similar in retirement for some workers who contribute to both throughout their careers.

ORPP contributions will be phased in. For large companies with more than 500 employees, contributions will start Jan. 1, 2017, and will be increased each year until 2019. For medium-sized companies, contributions will begin Jan. 1, 2018, and small companies with fewer than 50 workers will start contributing on Jan. 1, 2019, with contributions phased in to their maximum by 2021. Payouts can begin as early as 2022, but retirees will not have earned large benefits by that point.

When it is fully phased in, workers will contribute 1.9 per cent of their income to the plan, and employers will match the contribution. Those earning $70,000 a year, for example, will contribute about $3.46 per day worked, which will be matched by their employer. Contributions will stop at a maximum income of $90,000 a year.

At current levels, an employee earning $45,000 and contributing to the ORPP over 40 years would earn a payout of $6,410 a year, while a worker earning $90,000 a year would receive a benefit of about $12,815 a year. The benefit will be indexed to inflation, however, so it will rise over time.

Individuals don’t have to sign up for the ORPP. Companies that don’t have workplace pension plans will enroll their workers. All workers must participate if their company participates.

The ORPP will not cover self-employed workers because the federal Income Tax Act does not allow self-employed people to participate in a registered pension plan. Ontario has asked the federal government to consider changing the act to allow self-employed workers to join the ORPP.

The biggest difference is that CPP contributions max out at an income of $53,600, which means employees earning more than that amount make the same maximum contributions and receive the same CPP benefit. The ORPP will max out at an income of $90,000, which means higher-income workers can earn more a larger benefit.

Not necessarily, and the question has been a matter of much negotiation. The government says it will only exempt companies that already have “comparable” pension plans, which must be generous enough in their design to provide an adequate benefit in retirement. In particular, some companies with defined-contribution (DC) pension plans may not qualify. DC plans operate like personal savings accounts, with payouts varying depending on the success of the investments. The government says it will only exempt DC plans if they have a minimum annual contribution rate equal to 8 per cent of employee pay, and if the employer matches at least half of all employee contributions.

It depends. Many older workers will not earn large ORPP benefits if they do not participate in the plan for long before their retirement. Those who will have a significant benefit in retirement, however, should factor their ORPP payments into their retirement income estimates. Some people may decide to reduce other savings when they start contributing to the plan if they have less disposable cash available, but it will vary depending on personal circumstance.

Ontario’s Liberal government has committed to the plan and has done a lot of work on its design, but there is a lingering question of whether the ORPP will still proceed if a Liberal or NDP government is elected federally in October and moves ahead with a broader, national program to enhance the CPP.

Here are some ways the plan could take form: