Half of Ontarians may not have to save for retirement

New figures show that if Kathleen Wynne’s Ontario Pension Plan is adopted, up to 50% of residents won’t have to save a penny



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(VisualField/Getty Images)

The Ontario government’s new pension plan could change the way you save for retirement (VisualField/Getty Images)

The Ontario government’s new pension plan was intended to ensure that every resident is prepared for a comfortable retirement, but calculations by Fred Vettese, chief actuary at Morneau Shepell, show that it may be even more generous that most people think.

According to Vettese’s figures, roughly half of Ontario’s residents won’t have to save for retirement after the new Ontario Registered Pension Plan (ORPP) is phased in starting in 2017. That’s because when you add the new Ontario plan to the three existing federal plans (the Canada Pension Plan, Old Age Security, and the Guaranteed Income Supplement), the total income provided from the government will be enough to live on for most Ontarians earning less than $50,000.

Once launched, the ORPP will make it mandatory for any employee not currently enrolled in a workplace defined-benefit pension plan to contribute 1.9% of their earnings on the first $90,000 of income. Employers will have to match that for the promise of predictable payouts in retirement, indexed to inflation.

That means, for example, that a worker earning $45,000 for the majority of her career can expect $6,410 a year from the ORPP in retirement, on top of OAS, CPP and possible GIS payouts.

For the six million Ontarians currently working and earning  $50,000 or less, the combined income from the government plans will provide the suggested 60% replacement income required to maintain one’s standards of living in retirement.

Retirement IncomeThis will provide an income that is as good or better than what they are earning in retirement now, as Statistics Canada research shows (see table) that the average Canadian earning $20,000 or more when working replaces less than 57% of his or her working income in retirement, due to lower living costs.

Those who earn more in their working years will find the gap harder to close, even with the ORPP. Anyone in this situation will either have to save more or be forced to scale down their lifestyle in retirement.

Unfortunately, those are exactly the people who are facing the real savings crisis in the first place. “My estimate is that 15% to 20% of them are going to be retiring with inadequate pensions,” says Vettese. “They will have a more than 20% drop in their disposable income in retirement.”

Associate Minister of Finance Mitzie Hunter, who is overseeing the ORPP, was not made available for an interview, but in a letter to MoneySense she wrote that the ORPP “is not a replacement to personal or voluntary savings, which are still an important and essential part of the retirement income system” but rather “a secure retirement income floor for workers in the province.”

She also stated that the preferred solution is still a Canada Pension Plan enhancement, something Prime Minister Stephen Harper has so far refused, forcing Premier Kathleen Wynne’s hand to create this “made-in-Ontario” solution.

Retirement experts agree that the ORPP will help vulnerable Ontarians, but its current form it will also have some unintended consequences. It will reduce personal savings rates in important vehicles such as RRSPs and TFSAs, and could result in lower wages and watered down defined-contribution pension plans down the road as employers struggle to pay into the ORPP. It could also hurt very low income Canadians by causing clawbacks in their GIS payments when they retire, forcing them to save more while they are working to get the same retirement income.

“Overall, we are a little better off with the ORPP as it is currently envisioned but the plan design is still far from being optimized,” Vettese said.

More ORPP facts & figures »

6 comments on “Half of Ontarians may not have to save for retirement

  1. All this is assuming that the liberals don’t mismanage or outright steal the funds from this new pension plan.

    And I’d much rather save the money on my own and have something to pass down to my family when I pass away. Instead all the money will wasted if I die before 65.

    Enough with nanny state already.


    • I don’t know why people feel this way.

      Don’t you realize that the money has to be paid eventually when the non-saver retires and needs to go to the social safety net to live? Wouldn’t you rather that most/a good chunk of that money come from that non-saver (through the forced savings in the new pension plan) instead of you (in the form of higher taxes to fund social programs for destitute seniors)?

      We don’t let our seniors rot in the streets or under the bridges if they haven’t saved – if that’s where you think they belong then you should really think of moving to a country that shares you view.


  2. The paragraph outlining the “consequences” of this plan is only scratching the surface.


  3. Wow, puff piece much?

    An extra $6k a year is not going to enable people to “not save” for retirement. Compared to the contributions made, it’s an insult. The same amount deducted, privately invested in a balanced portfolio will garner a lot more return, and be passable to a spouse upon death.

    Basically, the whole thing is a scam designed to further take cash from the private sector and put in to the hands of the public sector. The costs to business will cripple private enterprise.


  4. If there is any OAS left in twenty years and If there is sustainable CPP and if the Liberals don’t squander the funds and bankrupt the province by then.
    Actuary them apples


  5. Half of Ontarians won’t have to save a penny for retirement? Really. Then lets all go out & spend all our savings now.

    You are using stats from 2002 & 2005. You do realize it is 2015.

    I do not share your confidence in our Government looking after my retirement or the Government after that or the one after that or the one after that.

    You still have not looked at how this will impact employers. Talk to the owner of your local coffee shop or restaurant. Contact the CFIB if you really want to know how this will affect small business.


    Larry Clark


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