Canada: Retirement: Ontario drops provincial ORPP and adopts Canadian Pension Plan (CPP)
August 24, 2016:
Lawmakers across Canada have recently agreed upon enhancements to The Canadian Pension Plan (CPP), which has canceled the Ontario Retirement Pension Act (ORPP), according to Asinta’s Partner in Canada, The Williamson Group – A Cowan Company.
The CPP
The Canadian Pension Plan is an earnings-related public pension plan which first took effect in 1966. The CPP requires all employed persons in Canada over the age of 18 to contribute a set percentage of their income to a nationally administered pension plan, unless they are currently living in Quebec, which runs its own, parallel plan (The Quebec Pension Plan). Benefits covered by the CPP include:
• Retirement Pension
• Post-Retirement Benefits
• Disability Benefits
• Survivor Benefits
• Pension Sharing
• Credit Splitting for Divorced or Separated Couples
• Death Benefits
• Child Rearing Provision
The ORPP
The Ontario Retirement Pension Plan was first introduced and agreed upon in 2015 in the Canadian province of Ontario. Its primary goal was to expand pension coverage to over 4 million employees who had no adequate workplace pension plan. The ORPP was set to be implemented over a period of three years starting in 2018. Under the plan, employees and employers would have contributed an equal amount (capped at 1.9% each), which would have provided a pension of up to 15% of an employees pre-retirement income.
The Enhanced CPP
On June 20th, 2016 Finance Ministers across Canada agreed on the landmark deal to enhance the CPP gradually over a 7 year time period, starting January 1st, 2019. This enhancement is the first benefit increase to the CPP since 1966. The newly enhanced CPP features:
• An increased income replacement ratio – from 25% to 33.3%
• An earnings cap that will increase from the current Yearly Maximum Pensionable Earnings (YMPE) of $54,900 to $82,700 upon full implementation in 2025
• An increase to employee and employer contribution rates from 4.95% to 5.95%
• An extra contribution of 1% that would be tax deductible to employees
These increases will mean a $7 per month contribution increase in 2019 for an employee making $55,000 annually, with a $34 per month contribution increase by 2023 for that same employee.
Effects of CPP Enhancement
Joe Nunes, President of Actuarial Solutions, Inc., had the following to say regarding the newly enhanced CPP:
“There are many details about the CPP expansion that are unkown, so it is hard to commend or critize the changes. One worry I continue to have is the possibility that today’s younger workers will be contributing to provide a benefit that those near retirement won’t be paying for themselves. When you charge a level premium for a fixed retirement benefit regardless of age, older participants get a more valuable benefit than younger participants since those older participants are closer to retiring and actually collecting the benefit.”
No matter what type of effect the newly enhanced CPP will have, Asinta’s Partner in Canada, The Williamson Group, will be there on the front lines to help Canadian workers and employers understand all of the changes to come. If you have any questions regarding the newly enhanced CPP or would like more information, you can contact Asinta’s Partner in Canada, The Williamson Group, here.