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What Does the ORPP Mean To You?

Ontario Pension Plan ORPP

You have no doubt been hearing the rumblings of an ORPP which means Ontario Retirement Pension Plan.   This can be pretty difficult for many people to focus on when they are struggling to make ends meet right now financially.   Yet the government is driving them to focus on their future. While this may not seem logically, to plan for your future most certainly is.   The question is though can an Ontario Retirement Pension Plan be your future financial solution?

The answer to the question is going to depend on a lot of factors.   Those against the pension plan raise several valid points.

Once the ORPP comes into effect it means every individual employee in Ontario that doesn’t have a formal pension plan will have to contribute up to $1,643. per year off their pay cheques.   Employers will have to match this amount for each and every employee.

Some experts are saying that it would take 40 years of contributions before an individual would enjoy the full benefits of the pension plan.   That means they would be waiting until the year 2057.

A good number of small businesses are certainly opposing this pension.   To add to this is the government’s proposal to offer additional exemptions for bigger companies who are able to contribute 4% or more to a formal retirement pension for their employee’s.   This amounts to in excess of 1.9% of the ORPP rate.   There is no way that the majority of small businesses can handle this.

Some businesses are indicating that this new pension is going to cause them to have to freeze salaries, while others are saying they may have to remove some of the positions within their business just so they can handle the costs of the pension.

Overall it is estimated that an individual who is earning $45,000 a year would end up paying $2.16 a day into the new pension fund, which the employer would have to match.   The end result would be about $6,410 per year for the retired employee for life.   Companies that have a comparable plan in place do not have to enrol in this new pension.

Individuals have to reach the age of 65 before they can qualify for benefits.

As to the viability of this pension plan it all depends on the circumstances of the individual.  It certainly is not going to be of any benefit to the retirees of today.   It may not be that beneficial to those who are going to retire in the next five years.   By the same token it may be very beneficial to those who have several years to go before retiring.   It can be pretty difficult for many individuals to save for their golden years.  The pension plan may make this an easier task.

 

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Sam Seidman, CPA, CA, LPA
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