Employers with capital accumulation plans should be exempt from participating in the proposed Ontario Retirement Pension Plan (ORPP), said Mark Yamada, president and CEO of PUR Investing, at the Retirement Investment Summit Canada in Toronto on Wednesday.
Under the current proposal, only employers with DB and target-benefit plans, the latter of which are not legal yet in Ontario, are exempt from contributing to the ORPP.
Read: Business, labour groups divided over ORPP
“Those companies that have gone to the trouble and expense of providing these [DC plans] to their employees will have to pay an additional” tax and so will their employees, Yamada explained. However, he added, DC plans should be rated for their effectiveness in delivering sufficient capital at retirement to provide replacement income the way DB plans do.
The ORPP would offer Ontarians a benefit on top of the CPP, requiring equal contributions from employers and employees that amount to no more than 1.9% each on annual earnings of up to $90,000. The ORPP aims to provide a replacement rate of 15% on a person’s earnings, up to a maximum yearly threshold of $90,000.
The ORPP is expected to launch on Jan.1, 2017. But the first time somebody will get a full benefit from it is in 2057, Yamada noted.
Read: Who should be exempt from the ORPP?
Ontario came up with the ORPP because the federal government has opposed the option of increasing Canada Pension Plan (CPP) benefits in response to the country’s inadequate retirement savings rate.
A year ago, Ontario Premier Kathleen Wynn remarked that “if [Prime Minister Stephen Harper] doesn’t believe that the Canada Pension Plan should be enhanced, then he should move out of the way and let Ontario do its work.”
The average annual CPP benefit is $6,800, while the he maximum one is $12,500—and a number of private-sector employees have no access to a workplace pension. In fact, “68% of all the pension assets in Canada belong to the public sector,” Yamada noted.
Read: What DC plan sponsors need to know about the ORPP
So, he said, the ORPP “is really an effort to get people in the middle-income bracket in a forced savings program.”
However, Yamada noted, the financial services industry is against it “because it’s taking money away from the private sector.”
Looking for related articles? Read more stories about the ORPP.