Finances

Professional advice and strategies still important today

Did you Know that that a Mandatory Ontario Registered Pension Plan is coming to you?

The first question that comes into mind is why?

Currently we have choices on how to save and invest for our future.

Ontario wants to mirror the Canada Pension Plan (CPP), including the way it treats low-income earners. The program would deem, like the CPP, that those earning less than $3,500 will be exempt from contributing, though they will not receive a benefit either.

The new Ontario Pension when enacted in January 2017 sees employers and employees contributing 1.9 per cent of the employee’s income, up to a maximum earnings threshold of $90,000 a year. The only groups the government wants to allow to opt out are those with a Defined Benefit Pension Plan (DBPP) plans or with Target Benefit Plans.

For clarity a Target Benefit Plan also pay a benefit for life, but may adjust the payment based on market conditions. And a Defined Pension Benefit means the income you receive at retirement under a DBPP is predetermined and is usually based on a formula involving your years of service and earnings.

All others, including DC plans and those with the newer pooled PRPPs, group RRSPs and deferred profit-sharing plans would be forced in.

Ontario’s Self-Employed will not be able to participate in the ORPP, given current rules under the federal Income Tax Act. The reality that comes up is that self employed individuals are less likely to be financially prepared for retirement when compared to people who have pension plans.

Now in order to include self employed people in the Ontario pension plan the provincial government would have to request the Federal Government to change the federal income tax act to allow self-employed individuals to participate in the ORPP.

Why am I bringing this information to you?

Well here is some history from the Ontario Teachers’ pension plan prior to 1990 - almost all plan assets were invested in non-marketable Province of Ontario debentures.

The Ontario government which then was an arm length agency was able to use and borrow the funds for the Government to use as inexpensive borrowing mechanism for infrastructure, such as roads, transit, bridges,etc.

You get the picture.

What happened as of January 1, 1990? With the strength of the teacher’s insistence the Ontario government created the Ontario Teachers’ Pension Plan as an independent organization to administer pensions and invest plan assets in diversified holdings.

This was the milestone that transformed Teachers’ from an obscure government commission plan to a trusted leader in the pension diversification and saw phenomenal growth.

In a recent Toronto Star poll taken earlier this year, before it was enacted, it was asked:

“Is the proposed Ontario Retirement Pension Plan a good idea?

No 62.59% (2,444 votes) Yes 30.73% (1,200 votes) Don’t know 6.68% (261 votes) Total Votes: 3,905

One thing I can say is we still need professional financial advice and strategies to assist the consumer with solid financial outcomes, not only in the areas of retirement income savings, but in a whole host of other areas, for example, planning for a child’s education or long-term health care needs or other financial goals.

It’s time to take charge of your financial future, or they will do it for you.

By unlocking value from its assets and encouraging more Ontarians to save through a proposed new Ontario Retirement Pension Plan, new pools of capital would be available for Ontario based projects such as building roads, bridges and new transit.

John@Johncolautti.com