Bill tabled for mandatory Ontario pension plan

For those without company plans

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TORONTO – The Ontario government is introducing legislation to create a provincial pension plan, but says its preferred option is still to improve the Canada Pension Plan.

Finance Minister Charles Sousa says the bill clears the way for the introduction on Jan. 1, 2017, of the Ontario Retirement Savings Plan, which will be mandatory for workers who do not already have a company pension plan.

Some business groups say forcing companies to match workers’ contributions to a provincial pension amounts to a “job killing” payroll tax, but Sousa calls that “an extreme view.”

He says the same arguments were made when the CPP was introduced in the 1960s, insisting “they were wrong then and are wrong now.”

Sousa also dismissed suggestions that the Ontario pension bill is designed to stall real progress on the issue until after next year’s federal election in hopes a new government in Ottawa would be open to improving the CPP.

He says if Ontario doesn’t take the necessary steps now, the province won’t be ready to start the provincial pension plan on schedule.

“The reality is that a significant number of today’s workers are simply not saving enough to maintain their standard of living when they retire,” said Sousa.

 

3 comments on “Bill tabled for mandatory Ontario pension plan

  1. Mandatory pension program was rolled out in Hong Kong in the 90s. There was some initial resistance by job providers, but it has been well received by workers. It has also helped reduced the preference for sons in Korea and Hong Kong, because children traditional take care of aging parents and men always makes more money. Encouraging people to save for their own retirement has positive cultural impact.

    I think it would be a great program for Canadians as well. With our health care and aging population, most of us are living longer and not saving enough. It will also punish the shadow economy, lure the workforce back to tax-paying sector.

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  2. Forced pensions seem good to many because they don’t know the true longer term cost to them and their family. For example, a income earner in Ontario that makes $52,650 a year would pay $1,000 a year out of his or her paycheck.

    This same $1,000 would come out of the employers contribution at first but really as years pass, workers are paying for it because employers will not give that $1,000 in a pay raise or pay raises. This is now $2,000 a year that is a worker has to contribute in this new ORPP.

    Now, since this is a fully taxable benefit or pension, we have to compare apples to apples not apples to oranges. This $2,000 put in an RRSP would get about $660 a year in RRSP income tax refunds.

    We now have $2,660 a year in an RRSP to be invested annually. Also, the annual contributions will not stay the same, I would say an annual average 5.75% annual increase is a fair figure to expect which includes 3.25% annual increases from the ORPP and a 2.50% annual wage increase.

    Assuming a 28 year old contributes until age 72 years and earns a conservative 4.20% per year in compound interest, GIC’s, government strip bonds etc., they would have $1,000,000. Just the annual interest is $42,000 at 72 years old.

    I read that the ORPP, Ontario Retirement Pension Plan will replace only 15% of your income at at retirement. Now, the 2.50% annual wage increases over 44 years from 28 to 72 years old would make a $52,650 income today be $156,044.49 income in 44 years. Take $156,044.49*15%=$23,406.60 is the ORPP’s annual pension payout at 72 years old.

    This is only 56% or just a little more than half of the annual interest from the above example’s RRSP, ORPP $23,406.60 annual pension versus $42,000 annual interest from RRSP.. Remember, this is not touching, depleting the principal or capital of the RRSP.

    Your spouse if you have one will get only about $13,000 a year and your kids and other non-spouse family members like nephews, nieces, brothers, sisters, etc. will get $0.00 from the ORPP but with RRSP’s depending on your balance left and income tax rate by province and Canada, federally, you could easily leave $300,000 to $600,000 depending how long one lives.

    People forget or assume, I am talking about those in their 20’s, 30’s and early 40’s that we will be getting our pensions at 65years old. We are not going to get this pension at 65 because the way with government finances are and the population getting older and living longer, demograhics, it will be much later. The younger you are, the more likely this will be paid in their 70’s.

    I can see easily the ORPP being paid at 72 years old. Remember, OAS is already at 67 years old now.

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  3. Politics aside —ORPP has no benefit for those 45 and older. This is a pension for the young —-mandatory up to age 45 and optional for the rest.

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