Canadians worry about retirement. That worry may be reduced for those living in Ontario.
Nearly one in four Canadian private sector retirees don’t have enough financial resources to pay for their lifestyle. Over half are fearful they will run out of money during their lifetime.
Last week the Government of Ontario announced details of the new Ontario Retirement Pension Plan (ORPP). The program is designed to help the two out of three Ontarians who do not have a secure workplace pension plan.
Premier Kathleen Wynne said, “The ORPP is truly forward looking, making Ontario a better place to work, invest and age.”
The logic behind this new initiative is the reality that not many individuals are able to save enough for retirement. Also Ontario taxpayers should not have the burden of caring for people who are not financially self-sufficient.
By ensuring more money is put aside for retirement, both future retirees and the provincial government will be in a better financial position. On that basis, this is a good initiative.
Participation in the ORPP will be limited to those who do not have an existing workplace pension or sufficient defined contribution plans. These plans must be locked-in and regulated by existing provincial pension standards.
Similar to the Canadian Pension Plan, the ORPP would be funded equally by employers and employees. Contributions will reach 1.9 per cent from employers and employees by the year 2021. The plan would come into effect on January 1, 2017.
Retirement benefits will be paid starting in the year 2022. They will be earned based on the contribution amounts, so younger workers are not burdened with providing retirement benefits to older workers.
The new program is not official yet. The current Liberal majority government must pass the legislation. Given their strong majority that seems very likely.
The proposed legislation does a good job of bridging the gap between the inequalities of our current pension plans. Government workers, as well as professions like school teachers and hospital workers, have excellent pensions. Most others do not.
The goal of the ORPP is for retirees to replace 15% of their annual earnings up to $90,000. Additional retirement income will come from the Canada Pension Plan and individual savings.
Our recommendation is to consider the long-term advantages of this additional source of retirement income. But remember it is meant to be a relatively small part of your retirement income.
The onus is on you to augment the ORPP and the CPP with your own savings. We suggest you consider an automatic savings plan to add additional dollars to your retirement nest egg.
Ontario has taken a bold move to increase your financial security during retirement. Now is a good time for you to take a bold move of your own and establish an automatic plan.
Regardless of how far away retirement might seem, it will happen. The Ontario government has done a good job to help you prepare.