# Ontario Pension Plan



## Money We Have (Mar 20, 2014)

I was never a fan of the proposed Ontario Pension Plan when it was announced and now it looks like a rookie MP is in control of it. I have this feeling it'll end up being a disaster.

For those unfamiliar, here's a quick primer I wrote about the pension plan based on the info I had at the time/


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## sags (May 15, 2010)

Mitzie Hunter may be a rookie MP, but she appears very well qualified for the position, given her MBA and comprehensive business experience and resume.

There is a very qualified 8 person board to set up the plan, and an experienced administrator already appointed.

I don't think her appointment is an issue.

As to the pension plan.........

The employee will contribute "up to" 1.9% of their earnings..........and the employer will contribute "up to" 1.9%.

The employee will receive an additional 1.9% per year towards their retirement from the employer.

What are the alternatives ? 

RRSP savings are woefully low. Most TFSA savings is "invested" in low growth GIC and HISA accounts.

The Federal Pooled Pension Plan has not been taken up by business......despite their lobby groups claims that they would.

The Harper government has rebuffed any expansion to the CPP.....despite expert advice and lobbying from the Provinces.

The "solution" that is left on the table.............is an increasing cost of social benefits.

If nothing is done..........taxpayers WILL be funding the cost of other people's retirement.......instead of the employees and their employers.

I don't expect employers to be happy about the plan. Given that employers who already have a pension plan for their employees are exempt, many of the employers who will be affected are those with no interest in their employee's future retirement needs.

For employers who do have an interest, and offer RRSP contributions on behalf of their employees............they have the option of contributing to the OPP instead, to negate the cost. Or...........they can do both, if they wish.

The employee benefits from a low cost, professionally managed pension plan, which will pay out the "defined benefits" as determined at retirement.

I am not seeing the "downside" to the Ontario Pension Plan at all.............despite some opposition to it.

In the poll located at the linked article.............interesting that almost 60% are in favor of the plan and 7% don't know yet. 

That leaves a minority of the people who voted opposed to the plan, which I think reflects the preference of the workers in Ontario fairly well, given the Ontario election results.

Premier Wynne has recently said that she wants to further the discussion on enhancement of the CPP, with the Federal government and Provinces.......and it is likely not much will be done until after the next Federal election.

The Harper government has publicly been firmly entrenched against any changes to the CPP, and it would be difficult for them to make a sudden change in their position now.

I expect expansion of the CPP may be an election issue.........since it is popular with the voters.

You never know though........there have been rumblings from Ottawa about possible changes to marijuana laws recently.

I think the Harper government is starting to realize they are heading into an election, on the wrong side of public opinion on a few issues.


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## gibor365 (Apr 1, 2011)

Can you clarify regarding _Is this new pension mandatory?
Yes with a few exceptions. If you are self employed, if your company already offers a pension plan, or if you work in a federally regulated industry such as banking, then you do not qualify."_

My wife works in bank and will have pension, I have group RRSP (I pay 6% and employer 9%). Does it mean that both of us will be exempt from this ridiculous OPP?!


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## 0xCC (Jan 5, 2012)

I haven't looked into the details at all but gibor, I would expect that your wife's employer will be exempt but yours won't. The option that your employer has in order to keep their costs the same is to reduce their contribution to your group RRSP by 1.9% and use that to pay the employer OPP premiums. Your take home pay will drop by "up to" 1.9% though.

Personally I think the OPP is ridiculous as well and my vote was largely based on an attempt to avoid having it implemented. The only good thing is it seems like they are going to phase it in fairly gradually and by the time it is fully implemented I will either be semi or fully retired (freedom 45!). I also think overall the plan is headed for disaster in the long term. By long term I mean 20+ years up until around the time that most retirees are expecting a full OPP (i.e. when today's 18 year olds are 65). I am worried about this because as Money We Have points out in their blog post the premiums collected will not necessarily be going into a separate pool of funds that get managed like the CPP but can be used to fund infrastructure. This will work out fine while the government is collecting more than they are paying out (which will be the case until around the time frame I mentioned above) but after that it just becomes a giant millstone around the neck of government. It is classic a political shell game.


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## nortel'd (Mar 20, 2012)

gibor said:


> Can you clarify regarding _Is this new pension mandatory?
> Yes with a few exceptions. If you are self employed, ............ then you do not qualify."_
> 
> 
> ...


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## sags (May 15, 2010)

I doubt the government will be able to just help themselves to the capital in the OPP.

They will be able to access the capital...........but it will be structured like all government borrowing and have to be repaid with interest.

A likely scenario is the government borrows capital from the fund at AAA market rates.........and the OPP receives a solid rate of return for fixed income portion of their investment portfolio.

I doubt any government would so foolish as to try to grab the money from the fund. The public would know about it, and the backlash would be deafening.


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## sags (May 15, 2010)

The "take home" pay for those currently contributing to an RRSP wouldn't necessarily be affected, unless they wanted to continue to contribute to their RRSP, plus contribute to the OPP............at their full rate for both.

The employer/employee could contribute 1.9% to the OPP..........and the balance to an RRSP.

The main difference wouldn't be in "take home pay"..........but rather in returns from the investment.

Some investors could earn a higher return by self investing. I expect the majority of forum members, living in Ontario..... would be opposed to the OPP because they are more interested and capable of DIY investing. This forum probably only represents the capabilities and interest of a very small % of Canadians though. People living in other Provinces do have a vested interest in the OPP though.........as OAS and GIS are funded directly by Federal tax dollars. Higher OAS and GIS costs in the future will affect taxpayers in every Province.

Given the sad state of RRSP and TFSA investing.........I think most people would benefit from having the pension money invested for them.

The OPP isn't intended as a full retirement pension........but a "top up" to the woefully low benefits people are collecting from the CPP.

The average benefit from the CPP is somewhere around $600 a month, if I recall correctly.


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## leslie (May 25, 2009)

*The Problem* - One of the biggest drawbacks to forcing people to use a 'deferred-tax' plan (like RRSP and Ontario's RPP) is that it reduces the $$ that could otherwise be saved in an 'exempt-tax' plan (like TFSA). For most people in the bottom tax bracket the net tax benefits from a TFSA would be A LOT BIGGER. The Ontario plan forces them to lose those additional benefits.

*Benefits of Dfd-tax plans*
1) The main benefit of both tax-exempt and tax-deferred accounts is the permanently tax-sheltered growth. (No the income in an RRSP (or the Ontario RPP) is not taxed on withdrawal). This benefit is exactly the same between the accounts.
2) RRSPs (and the Ontario RPP) have additional costs/benefits.
................a) There is a growing cost to any delay in claiming the tax deduction for contributions. This won't be an issue once (b) and (c) are dealt with.
................b) There is a Bonus (or Penalty) from a lower (or higher) tax rate applied to the withdrawal (versus the contribution) equal to the $$ withdrawn multiplied by the difference in rates. This will negatively impact the lower-income people who will be forced into the Ontario plan (from a TFSA). This can be prevented.
................c) The income in retirement will cause people to lose benefits from other income-tested programs. On top of the statutory tax rates at which they withdraw from your plan, they will have an additional 50% added for loss of GIS and 15% added for loss of OAS. This makes the problem in (b) even bigger. This can also be prevented.

*Necessary changes*
1) The mechanics of the Ontario plan should be changed so that both contributions and withdrawals are made at the same tax rate. There are several ways to do this.
(i) One way keeps both transactions off the Tax Return. The tax rate is preset and the account-issuer itself books the $$ tax value at the time of the transaction and recovers/pays the cash directly with your government. Much like RRSP withholdings tax is already being treated. This prevents the Bonus/Penalty in (b) above and also prevents the loss of other benefits in (c) above.
(ii) Another way puts both transactions on the Tax Return in the list (under the Personal Tax Exemption) used to calculate the tax credit (which would now sometimes result in a debit) at the bottom tax rate. This sets the transactions at the bottom tax bracket %% which may not stay the same over time, but will be roughly equal. This prevents the Bonus/Penalty in (b) above but do nothing about (c).

2) Ontario should lobby the Federal Government for changes to the qualification calculations for GIS and OAS. The (c) issue above would be neutralized if the qualification for both GIS and OAS included 'deemed' income from the value of TFSAs. The minimum Required RRSP Withdrawal percentages could likewise be multiplied by everyone's TFSA balance to calculate a 'deemed' income. This would equalize the impact of tax-deferred and tax-exempt accounts.

There need not be any requirement to actually withdraw $$ from the TFSA, but the cash left in would continue to be 'deemed income' repeatedly. This will have the additional benefit of preventing rich people (not needing to live off the savings) continuing to reap tax-sheltering benefit till they die. (But that is another issue). This change should be done QUICKLY before people start amassing large amounts in TFSAs. Their resulting unfair benefits over RRSPs, company pension plans, group RRSP's, and the Ontario RPP would be neutralized. 

The system would be more fair.


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## Money We Have (Mar 20, 2014)

gibor said:


> Can you clarify regarding _Is this new pension mandatory?
> Yes with a few exceptions. If you are self employed, if your company already offers a pension plan, or if you work in a federally regulated industry such as banking, then you do not qualify."_
> 
> My wife works in bank and will have pension, I have group RRSP (I pay 6% and employer 9%). Does it mean that both of us will be exempt from this ridiculous OPP?!


Based on the info at the time your wife for sure will be exempt. I'm not 100% sure about if group RRSP matching will be exempt though


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## 0xCC (Jan 5, 2012)

sags said:


> They will be able to access the capital...........but it will be structured like all government borrowing and have to be repaid with interest.
> 
> A likely scenario is the government borrows capital from the fund at AAA market rates.........and the OPP receives a solid rate of return for fixed income portion of their investment portfolio.


In this scenario the only real reason I can think of to borrow funds from the pension (from the province's perspective) is that the market wouldn't give as high a credit rating as the pension would. Which implies that the pension fund is not getting a solid rate of return (because the open market would give them a better rate).

I do agree that they won't be able to raid the fund dry without proper agreements in place but again the only reason to go to the pension fund first is because a better deal can be had there at the expense of the pension fund. Of course all of that can be baked into the fund's expected returns and contributions/benefits so that at the end of the day the contributors are left holding the bag with a lower ROI (vs investing themselves which of course brings up the way the Liberals have been selling this in the first place; people aren't saving enough on their own).


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## gibor365 (Apr 1, 2011)

Money We Have said:


> Based on the info at the time your wife for sure will be exempt. I'm not 100% sure about if group RRSP matching will be exempt though


I hope that will be exempt too , already 15% of my salary goes to Group RRSP, don't need any additional deductions....
Question when this plan will be implemented.... as like OxCC said I hope that "by the time it is fully implemented I will either be semi or fully retired " 
Just wondering ... how many new goverment jobs will be created and what will be cost of implementation of this plan ?!


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## gibor365 (Apr 1, 2011)

_Liberals have been selling this in the first place; people aren't saving enough on their own. _ Why Liberals thinking that people are so stupid?! 
imho the major issue for low income retired people is housing ... than government should just build more subsidized home and not in Toronto, but in suburbs, up north and so on.


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## sags (May 15, 2010)

I would "hope" the Ontario Pension Plan would be restricted to investing only in AAA rated bonds.

Given that scenario, the plan would not lose ROI by "lending" Ontario the capital ......instead of another AAA borrower, if Ontario paid the market rate for AAA debt.

Currently Ontario is not rated AAA.........so it would require a legal understanding that their debt would be treated AAA regardless of the actual rating. The lower rating than AAA would reflect a higher risk of default.......but since Ontario, has unlimited ability to raise revenues through fees and taxes........the risk of default would be negligible. One could also properly assume I believe, the Federal Government would aid Ontario or any other Province........before they would allow a default.

I don't know that there would be any more secure fixed income investments available anywhere else.

The restriction on AAA rating would only apply to the fixed income part of the Ontario Pension Plan portfolio, assuming the investments are well diversified with a real estate, equity market, private enterprise mix.


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## sags (May 15, 2010)

gibor said:


> _Liberals have been selling this in the first place; people aren't saving enough on their own. _ Why Liberals thinking that people are so stupid?!
> imho the major issue for low income retired people is housing ... than government should just build more subsidized home and not in Toronto, but in suburbs, up north and so on.


A lot of people have little or no money saved for retirement........and no plans to do so.

They will be living on government benefits.....and those of us who finance our own retirement will be paying for the higher benefit cost.

The choice is clear.........mandate that people save some of their own retirement savings........or we will end up paying for it all.

Time is money though.........and something needs to get started.

I would prefer the simple solution..........change the CPP..........but Harper is dead set against that idea for some reason.


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## 0xCC (Jan 5, 2012)

sags said:


> I would "hope" the Ontario Pension Plan would be restricted to investing only in AAA rated bonds.
> 
> Currently Ontario is not rated AAA.........so it would require a legal understanding that their debt would be treated AAA regardless of the actual rating. The lower rating than AAA would reflect a higher risk of default.......but since Ontario, has unlimited ability to raise revenues through fees and taxes........the risk of default would be negligible. One could also properly assume I believe, the Federal Government would aid Ontario or any other Province........before they would allow a default.


This is my point. The fund would be taking on more risk by definition (since Ontario is not currently rated AAA, a downgrade that I think came after the budget was passed and also increases existing debt costs). Whether or not they will actually default isn't really the issue, the risk is higher therefore the ROI should be higher but it isn't because the pension plan was set up at the outset as a lending instrument for the Province in addition to being a pension plan. My view is that it is really just a way to fund the infrastructure and transit plans (that are probably way overdue) while not having to "increase taxes" to do it. I would be much more happy with a well laid out infrastructure and transit plan that clearly shows that a 1.5% or so tax increase is necessary to pay for. Instead the Liberals cook up the OPP and use the "people need help saving for retirement" line while burying the fact that the OPP funds will be used to prop up government spending.

Sags, as you commented earlier it is likely that everyone on this forum from Ontario is in the position that the OPP will be more of a hindrance than a help with their finances. I would rather manage my own retirement funds than have the government do it for me and if they have to do it for me I want them to get the best risk adjusted return the markets will offer (for an acceptable level of risk). That is not happening here and I don't trust the politicians to not play games with the terms related to getting access to the pension fund's coffers. It isn't like we are going to have a referendum every time they want to borrow more money.


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## 0xCC (Jan 5, 2012)

sags said:


> The choice is clear.........mandate that people save some of their own retirement savings........or we will end up paying for it all.


This is the part of the plan that I think makes the most sense and I don't think I have a better solution for it that also allows people that are properly saving to opt out. I think if you allow people to opt out (even it it is based on some sort of retirement account asset test) the plan would be less effective overall because the cash flows and assets under management would be reduced.

The only thing I can think of that would make the plan more palatable for me would be to keep it separate from the infrastructure and transit spending and raise the funds for those projects through an actual tax increase. I would be interested to know if it would be possible to do both of those things for the same 1.9% of incomes up to $90k (or 3.8% employer+employee). My guess is that it isn't and that a good chunk of the difference in cost comes from the credit rating disparity.


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## sags (May 15, 2010)

I worked at a place with a DB pension plan.

Most of the people who worked there............didn't have a clue about their plan.

We had people who inadvertently worked past their retirement eligibility date...that is how clueless they were about their own retirement.

My son works for a company that gives a year end $1000 bonus for each year of seniority with the company, up to a maximum of $10,000 each year.

They are all young guys....and they spend the bonus on trips, furniture, rims for their vehicles, expensive Christmas gifts......just spend it all.

Lecturing them on the need to save for retirement..................20 years down the road.............gets nowhere.

If the company could pay 50% of the bonus into the Ontario Pension Plan......and give them the remaining 50% to blow......it would be a better situation.

I have yet to meet a retiree with a DB pension plan who says......."I wish I didn't have a pension plan".

More often than not.........the pension plan and a home is all they have.

I have met a lot of retirees who have neither........a pension plan or a home.

It is a day to day struggle for them.


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## andrewf (Mar 1, 2010)

I would really rather the ORPP be managed similarly to CPP. More reason for opponents of CPP expansion to allow it to go through to forestall something worse.


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## mars (Mar 11, 2014)

I will assume most on here understand that in order to collect from the ORPP that they will first have to contribute and their payments out will be based on their contributions, however, I wonder how many who think the new ORPP is a great idea understand this? This will not help those who are retiring now or even within the next 5 - 10 years all that much. I also wonder if this is part of the reason the provinces are pushing to expand the CPP, so that they can push to expand benefits paid out now, not in another 20 years or more when the benefits from the plan will really take effect.

A number of years back I was surprised to find out the number of people who didn't have any type of pension through their work place. I guess I have been lucky over the last 20 + years, I'm currently on my 4th employer and I've had a pension plan as well as other company sponsored saving plans every place I've worked. I did notice at my first ever work place, on top of the pension plan, they also had a company share save plan where we could contribute up to 6% of our pay and the company would add another 3%. What surprised me was the number of people who didn't take advantage of the program to get the free money.


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## HaroldCrump (Jun 10, 2009)

gibor said:


> My wife works in bank and will have pension, I have group RRSP (I pay 6% and employer 9%). Does it mean that both of us will be exempt from this ridiculous OPP?!


Your wife may be exempt, but you will not be.
Group RRSP does not qualify as a registered pension plan.
Expect to have your employer's contribution into your group RRSP reduced by 1.9%.

I don't know how old you are (I am not asking, either), but chances are you will see precious little "defined benefit" from the plan when you retire.
Implementation is supposed to begin in 2018.



gibor said:


> Just wondering ... how many new goverment jobs will be created and what will be cost of implementation of this plan ?!


Lots and lots.
Each and every one of them will be on the Sunshine List.

_Keohane is another of the eight industry experts, including former prime minister Paul Martin, advising Hunter. 
A ninth, Michael Nobrega, recently retired as CEO of the Ontario Municipal Employees’ Retirement System (OMERS), has been given the task of overseeing the nuts and bolts of implementation._

_She said she does not have a pension beyond what she has saved in RRSPs._

well, well, now she does...and it is not the one she's creating for us :rolleyes2:


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