Design for Ontario pension plan revealedpar Andrew Rickard | January 27 2016 01:30PM
The government of Ontario has revealed some details about how the new Ontario Retirement Pension Plan (ORPP) will be structured and administered. Benefit indexation is conditional on funding, and the self-employed are exempt from contributing.
Premier Kathleen Wynne, Minister of Finance Charles Sousa, and Associate Minister of Finance Mitzie Hunter released the ORPP design details on Jan. 26. According to the government’s backgrounder, every eligible worker in Ontario will be part of either the ORPP or a comparable workplace pension plan by 2020, and the plan will begin paying benefits in 2022.
After someone has contributed for 40 years, the plan is expected to replace 15% of his or her income. The province says that retirement benefits will be indexed according to the Consumer Price Index (CPI) to account for inflation, but it has built in an escape hatch should the plan run into difficulties: in the event of a funding shortfall, the backgrounder says benefit indexation may be reduced "up to a certain limit" – although the document does not provide a number for this “certain limit”. What's more, if reducing benefits is not enough to reduce any funding shortfall, contribution rates “may be increased by up to 0.2%”.
Should a member die before retiring, the ORPP will pay a lump sum death benefit based on the actuarial equivalent value of the member's pension to an eligible spouse. If there is no eligible spouse, the lump sum will be paid to the member's beneficiary or the estate. After retirement, a member with a spouse will receive a joint and survivor pension that would pay the spouse 60% of the member's adjusted pension in the event of the member's death. If a member does not have a spouse at the time of retirement, the pension is provided with a 10-year guarantee period; should the member die during those ten years, the remaining value will be paid to a named beneficiary or the member's estate.
To oversee the plan, the provincial government intends to create its own Office of the Chief Actuary to conduct valuations every three years and to provide advice and analysis. The government says that, as designed, ORPP benefits will be sustainable over the next 100 years.
The government is exempting individuals who have self-employed earnings from participating on the grounds that the federal Income Tax Act does not currently allow self-employed individuals to participate in registered pension plans. “The goal is for every employee in Ontario to be part of the ORPP or a comparable workplace pension plan. That includes the self-employed,” reads the government statement. “The province will continue to explore options to enable the participation of the self-employed in the ORPP.”