Employers can breathe a sigh of relief as the provincial government are defining DC plans offering total contributions of 8 per cent as comparable to the ORPP
The provincial Liberals are saying for a workplace DC plan to be able to reliably deliver the same level of income replacement in retirement as the ORPP, it must have a minimum total contribution of 8 per cent of base salary earnings.
Employers will be required to contribute at least 50 per cent of the total minimum contribution — or at least 4 per cent.
“Today's announcement by the Ontario government recognizes that defined contribution pension plans can provide significant retirement income security for Ontario workers, and that Pooled Registered Pension Plans have the potential to extend such coverage to millions more,” said Frank Swedlove, president and CEO of the Canadian Life and Health Insurance Association.
“The Ontario proposals are complex and the industry will need some time to analyze what implications this announcement will have for the retirement savings plans of Ontarians and indeed other Canadians who work for national companies.”
The Ontario Chamber of Commerce, an outspoken critic of the plan throughout the process, had mixed feelings about the announcement.
"Today's announcement is a step in the right direction," said Allan O'Dette, President & CEO of the OCC. "Broadly speaking, the Government of Ontario has responded to our advocacy efforts. Despite today's announcement, we remain concerned that the ORPP in its current form will have a negative impact on business competitiveness."
For Ontarians not already enrolled in a pension plan, it will cost them anywhere from a Tim Horton’s to a specialty cup of coffee per day.
A person making $45,000 a year can expect to pay out $2.16 a day while someone making the maximum of $90,000 annually will fork out $4.50 a day.
The government’s release says the plan will be fully implemented by 2020 with benefits starting to be paid out two years later.
A person earning $45,000 per year for 40 years will receive $6,410 a year for life, compared to $90,000 a year earners who will receive $12,815 a year for life — it amounts to about a 15 per cent return after 40 years.
Participants must be 65 years old before they can collect.
"My goal is to build a secure, sustainable pension plan for the people of this province,” said Mitzie Hunter, Associate Minister of Finance (Ontario Retirement Pension Plan). “The ORPP is a plan for today’s workers, tomorrow’s and generations to come — helping Ontarians achieve a secure retirement."
More details about comparable plans can be found here.