Ontario Retirement Pension Plan (ORPP) : Will Those Over 50 Benefit?

If you plan to retire in the next 15 years, I wouldn’t get too excited about how the Ontario Retirement Pension Plan (ORPP) will supplement your retirement income!

While I have many issues with the ORPP, I realize there is relatively little I can do about it being implemented at this point. However, as a certified financial planner, I need to know how it will affect my clients and how to model the plan in the retirement planning software I use. To date, I know the financial cost but no where can I find the financial benefit!

I decided to find out more as it relates to helping clients and readers of my blog and newsletter to better understand the costs and benefits to the program. Here’s a very short summary.

• Contributions don’t begin until at least 2017.
• You will be expected to contribute 1.9% of your pay for earnings between $3,500 and $90,000. Therefore if you earnings are $90,000, the maximum deduction is $1,643.50 annually.
• You can’t collect any benefit until age 65.

More about the program is available at the ORPP website  as follows. You can even sign up for email updates there.

http://www.ontario.ca/page/ontario-retirement-pension-plan

or call 1-844-217-4516

On the ORPP website, it’s very clear about how much workers will have to contribute, however there are only examples of the payout benefits for those that contribute for 40 years and retire at age 65.

I have made calls on three separate occasions to the ORPP and no one I spoke to has any information about what the benefit will be for any other scenario. That information is just not available.

So take a 50 year old worker, making $50,000 annually. In their example, the amount contributed will be ($50,000 – $3,500) x 1.9% = $883.50 annually. If the worker continues at the same pay scale for 15 years, they will have contributed $13,252.50.  I posed that question to the ORPP staff and their response was they don’t know what the benefit would be? No lookup table, no website calculator, no nothing!

While the Ontario government claims one of the goals of the ORPP is to “replace 15% of an individual’s earnings”, that’s for someone starting in 2017 and then 40 years down the road in 2057! In my example, or a 50 year old, it will do precious little.

My Own Rough Estimate

I decide to my own estimate of what the payout might be in the example above.**

For a male, age 50  investing $883.50 for 15 years (assume 3% growth annually), the future value is about $16,422.84. If he turns around and buys an indexed annuity with theses funds (assume a registered plan) and providing a 3% payment increase annually for life. The payout could be as high as about $772 annually or $65 monthly in today’s dollars and interest rate environment (August 2015 annuity rates). It would also be fully taxable.

So in this example, $772 annual benefit for someone earning $50,000 is about 1.5% of their earnings, 1/10 of what the government is targeting.

I will continue to monitor the ORPP and report if I receive any concrete information that is beneficial! 

** errors and omissions excepted

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