ORPP: Low income, part-time workers to take home less

18 years or older making as little as $3,500 a year? Prepare for more mandatory savings

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The Wynne government appears to be forging ahead with its Ontario Retirement Pension Plan (ORPP), announcing late last week that anyone between the ages of 18 and 70 making as little as $3,500 a year will be obligated to contribute a portion of their earnings to the mandatory savings plan. And that’s in addition to existing Canada Pension Plan (CPP) payroll deductions.

While not entirely unexpected, the announcement does raise a couple of questions: Is Premier Kathleen Wynne bluffing? Is she simply trying to hasten newly elected Prime Minister Justin Trudeau to make good on his campaign promise to enhance the CPP? In a pre-election sit-down interview with Maclean’s Paul Wells in August, Wynne suggested she might not need to proceed with the ORPP under a federal Liberal majority government. “What I’m sure about is that the people of Ontario need an Ontario Retirement Pension Plan or they need an enhanced CPP,” Wynne told Wells.

By releasing new details of her provincial pension plan, it’s clear Wynne isn’t tipping her hand just yet. Malcolm Hamilton, a senior fellow at the C.D. Howe Institute, says the $3,500 minimum threshold was likely chosen for administrative convenience (the CPP also has a minimum $3,500 pensionable earnings). He also said it makes absolutely no sense.

“It’s really a sad thing because it means the plan is a burden on the province’s working poor,” he said, adding there’s no evidence to suggest that people earning less than $25,000 a year need to save more for retirement. That’s because existing government programs including Old Age Security (OAS), Guaranteed Income Supplement (GIS) and CPP do a  good job of taking care of low-income seniors. It’s the middle-class that tends to suffer in their golden years due to a lack of personal savings.

Half of Ontarians may not have to save for retirement »

Premier Wynne first introduced the ORPP last year in an effort to remedy Ontarians’ poor retirement savings habits. Once the plan is in full swing by 2020, all workers without a comparable workplace pension plan would be forced to stash 1.9% of their first $90,000 of income in a pension investment fund managed by an arms-length financial institution. Employers would have to match contributions with guaranteed payouts starting at retirement age. For a person earning $45,000 a year, contributions of $2.19 per day amount to an additional $6,410 per year for life in retirement on top of OAS and CPP. Contributions will start in four waves, starting first with large employers on Jan. 1, 2017.

What you need about the ORPP »

However well intended, critics charge the ORPP will disproportionately hurt small- and medium-sized businesses forced to pay into the plan and ultimately cost jobs. It also limits savers’ ability to invest their money according to their own preferences and risk profile.

Hamilton said he’s hopeful the federal government will bail the province out with a well-designed CPP enhancement, allowing Wynne to drop her plan.

However, Trudeau will need the backing of at least three-quarters of the provinces representing three-quarters of the population to proceed with CPP enhancements. And with Quebec and Saskatchewan already managing their own plans, it’s not a sure-fire thing.

“From Wynne’s perspective, she can’t assume with great confidence it’s a done deal,” Hamilton said.

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