What the ORPP means for your business

If you haven’t already, then you will be hearing more and more about the ORPP in the coming days. As a business owner (large or small) in Ontario, it is important to get an understanding of what ORPP is and how it affects you and your employees.

ORPP

The ORPP is the Ontario Retirement Pension Plan. As the name suggests, it is a pension plan that is managed by the province Ontario for its residents. It covers those people who currently do not have workplace pension plans, and will supplement their income upon retirement. Current estimates state that 3.5 million workers will participate in this program.

How will the ORPP work?

The structure of the ORPP is similar to the CPP (Canada Pension Plan). Like the Canada Pension Plan, both employees and their employers will contribute to this plan. These contributions will come from payroll deductions.

The amount you receive from the plan will depend on the number of years you contribute and your salary during those years.

Will I continue to contribute to the CPP (Canada Pension Plan) if I join the ORPP?

Yes. The ORPP is in addition to the CPP contributions, and an attempt to plug the gap for those employees who do not have workplace pensions.

What is the goal of the ORPP?

The ORPP is designed to provide approximately 15% of a worker’s pre-retirement income (up to a maximum cap), which is similar to the target goal for CPP payments. This means that both the CPP and ORPP payments in retirement could be similar for employees who contribute to both plans throughout their careers.

When will it start?

The government has created a schedule to start the contributions depending on the size of the business. It also has a 2 year phase in period between the start of the contribution and it reaching its maximum.

Business Size Contributions Start Contributions at Maximum
Large companies (500+  employees) 2017 2019
Medium size businesses (50 – 499 employees) 2018 2020
Smaller firms (less than 50 employees) 2019 2021
All other eligible employees 2020 2021

NOTE: the recent Ontario provincial budget has proposed delaying the start by one year (2018)

 

How much will it cost?

When the plan is completely phased in, employees will contribute 1.9% of their income to the plan, which will then be matched by the employer. For example: Jason earning $60,000 a year will contribute $3.12 per day, and the employer will match this amount. Also to be noted is that the contributions will only apply to the first $90,000 of income and not above it.

How much will I get when I retire?

Based on the current standards, an employee earning $45,000 and contributing to the ORPP over 40 years will earn a payout of $6,410 a year for the rest of their life, post retirement. An employee earning $90,000 would receive a benefit of $12,815. Also important to note is that the benefits will be indexed to inflation, so will rise over time.

Do I have to sign up?

No, because companies who don’t have workplace pension plans will enroll their employees. And if the company participates, then all workers must as well.

What if I’m self-employed?

Self-employed individuals are NOT covered by the ORPP. This is because currently the Federal Income Tax does not permit for self-employed individuals to participate in a registered pension plan. The Ontario government has requested the federal government to reconsider this stipulation so that self-employed individuals can join the ORPP.

Is the ORPP exactly like the CPP?

Yes and No. The structure is the same, and the difference is the income at which contributions max out.
– CPP contributions max out at the $53,500 income level.
– ORPP contributions max out at the $90,000 income level; which means higher salaried employees can earn a larger benefit.

Will all workers with company pension plans be excluded from the ORPP?

At the moment, the government has stated that only companies with “comparable” pension plans will be exempt. This is to ensure that all pension plans adhere to a certain standard, which provides adequate benefit in retirement. This question is currently under discussion and negotiation.

Will I have to change my personal investing goals if I am enrolled in the ORPP?

Personal circumstances will determine any adjustments to personal investing goals. Employees who are nearer to retirement don’t stand to benefit much from the ORPP benefits since their contributing years will be few. Those who stand to earn a larger benefit in their retirement from the new ORPP payouts, should factor this into their long term strategy.

SRJ-ShayanRashidShayan Rashid, CPA, CA
Partner, SRJ Chartered AccountantsSRJ Chartered Accountants is a CPA firm with offices in Toronto and Mississauga, providing taxation, accounting and business advisory services. Contact us for more information on how the ORPP will affect your business. Email info@srjca.com or call +1-647-725-2537

 

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s