Public Consultation on the Québec Pension Plan

Today, people study longer but the age at which they retire does not increase. In 1984, the average age of entry into the labour market was 19 years and the average age of retirement was 62.5 years. In 2021, the average age of entry into the labour market was 22 years and the average age of retirement was 63.7 years. Workers therefore have less time to save for an increasingly longer retirement.

Evolution of the working period

Life expectancy of the population is increasing, like the length of retirement.

In 1966, a person age 65 could expect to live another 15 years on average. Today, it is estimated that a person who retires at that age will be retired for approximately 21 years. In about 40 years, such a person will be retired for more than 24 years. This is an increase of 60% since the creation of the Plan.

Québec workers tend to leave the labour market earlier. The age at which a person becomes eligible for the retirement pension is lower in Canada and Québec than in most industrialized countries.

To ensure that they have sufficient income throughout their retirement, workers will have to save more, work longer and/or postpone receiving the payment of their retirement pension under the QPP.

Quebecers' savings for retirement are sometimes insufficient. Personal savings are necessary for anyone who earns more than $30 000 a year. However, in 2019, 41% of persons who earned between $30 000 and $50 000 a year did not contribute to a retirement savings vehicle (RRSP or SPP) other than the QPP.

In addition, a large portion of the population is asking to receive an early pension under the QPP, that is, a pension paid before the normal retirement age, which is age 65. They receive their pension earlier, but the amount of their pension will be reduced throughout their retirement. Therefore, they are more vulnerable to the financial risks related to retirement.

A survey conducted in 2021 showed that, among the persons who applied for their retirement pension under the QPP at age 60 and who turned age 70, 1 person out of 5 was questioning their decision. If those persons could change their choice, they would apply for their pension at a later age.

Due to the demographic structure and growing life expectancy, the aging population has repercussions on the labour market. The labour force is becoming more rare in Québec. Contrary to the working-age population (aged between 20 and 64) in the United States and in other Canadian provinces and territories, which is increasing, the labour force in Québec will be decreasing until 2030. Moreover, it will progress slower than elsewhere in Canada between 2030 and 2035.

In order to adapt to this reality, numerous employers are seeking experienced workers to fulfill vacant positions. In Québec, since 2014, the labour force participation of persons aged between 55 and 59 has increased by 8% to reach 78%, and that of persons aged between 60 and 64, by 6% to reach 54%.

Transition from work to retirement is evolving: it is more gradual. The transition allows a person to combine work and retirement income over a longer period. Seasonal or part-time work... Different possibilities are offered to workers who would like to reduce their work pace.

The normal retirement age provided for under the QPP is currently 65. If a person applies for his or her retirement at that age, he or she receives 100% of the expected monthly payments.

However, the minimum age of eligibility for a pension under the QPP is 60. As of that age, a person can apply for an early pension, but the amount is reduced by 0.5 to 0.6% for each month prior to age 65, for life. A person who retires at age 60 only receives between 64% and 70% of the replacement rate expected for a pension applied for at age 65.

On the contrary, where a person applies for his or her pension after age 65, the amount increases. Therefore, it is generally advantageous to apply for a pension at age 65 or even later. For example, a person age 73 began receiving his or her pension at age 65. The total income from the pension exceeds the income that he or she would have received if he or she had applied for a reduced pension as of age 60.

The maximum age of eligibility for a pension under the QPP is set at 70. Therefore, it is possible to apply for a pension at any time over a 10-year period. Both proposed scenarios maintain the 10-year period.

Food for thought

Option 1: Raising the minimum age of eligibility for a pension under the QPP to 62 and the maximum age to 72, over a 7-year period

If the minimum age of eligibility for a pension under the QPP were raised to 62, a person entitled to the maximum amount would receive a pension higher by 22%, that is, $2166 per year, for life. Likewise, by raising the maximum age of eligibility for a pension under the QPP to 72, a person could receive a pension higher by 12%, for life. For a person entitled to the maximum amount, that represents an additional amount of $2527 per year.

Option 2: Raising the minimum age of eligibility for a pension under the QPP to 65 and the maximum age to 75, over a 22-year period

If the minimum age of eligibility for a pension under the QPP were raised to 65, a person entitled to the maximum amount would receive a pension higher by 56%, that is, $5415 more per year, for life. Likewise, by raising the maximum age of eligibility for a pension under the QPP to 75, a person could receive a pension higher by 30%, for life. For a contributor entitled to the maximum amount, that represents $6318 more per year.

In both options, beneficiaries under the QPP would receive their full retirement pension as of age 65, as it is currently the case. Therefore, they would benefit from a higher pension, for life. It would be easier for them to plan their retirement and better manage the financial risks related to retirement.

Currently, a person who is working must contribute to the QPP, even if he or she is already receiving his or her retirement pension. His or her employer is also contributing to the Plan. The contributions of a person and his or her employer therefore give entitlement to the retirement pension supplement. As for the Canada Pension Plan (CPP), it allows workers who are already receiving their pension to stop contributing to the Plan as of age 65.

Food for thought

Although it remains generally advantageous to continue contributing to the Plan, beneficiaries of the pension under the QPP who are still working could stop contributing as of age 65 if they consider that their financial preparation for retirement is sufficient. They would receive a higher available income in the short-term. The measure would also harmonize the rules of the QPP with those of the CPP.

The calculation of a person's retirement pension under the QPP currently varies depending on his or her employment earnings and contributions. A person's contributions are taken into account from his or her 18th birthday until the month preceding the one during which payment of the retirement pension begins, without exceeding age 70. Where a person decides to begin receiving his or her pension payment after age 65, his or her contributory period is longer. Therefore, if the person's employment earnings are lower or nil after age 65, the average earnings used to determine the amount of his or her pension could be reduced. As for the Canada Pension Plan (CPP), in the same context, the average cannot be reduced, because the period used to calculate the pension ends when the person turns 65.

Food for thought

The years during which a person receives low employment earnings after age 65 might not be considered in the calculation of the retirement pension to avoid the average earnings used to be reduced.

The measure would be advantageous for persons who would like to continue working, but who would be earning a lower income. It would also harmonize the rules of the QPP with those of the CPP.

Currently, if a person is applying for his or her pension before age 65, the amount of the pension is reduced using an adjustment factor throughout retirement. The factor varies between 0.5% and 0.6%, based on the amount of the pension.

Food for thought

If the adjustment factors were increased by 0.05%, to vary from 0.55% to 0.65%, the retirement pension of new beneficiaries would decrease by more than $90 for each year of early retirement. The measure could encourage several Quebecers to postpone the date on which payment of their retirement pension begins, which would allow them to increase the amount of their pension and therefore receive better protection against the inflation risk, the longevity risk and the rate of return risk. The measure could also keep experienced workers on the labour market and foster the financial health of the Plan.

The QPP's base plan includes measures to limit the impact that reduced earnings caused by a period of disability or a period during which there is a dependent child could have on a person's average career earnings. The periods concerned are only determined when the pension is calculated, and persons applying for a pension generally have little or no knowledge of the impact of those measures. The QPP's additional plan, introduced in 2019, does not include any recognition measure of those periods. However, the Canada Pension Plan (CPP) provides for earned credits related to those periods, which means that it estimates the loss of wages caused by the period of disability or the period during which there is a dependent child and adds earnings to compensate for the loss in the calculation of the pension.

Food for thought

If earned credits were added to the QPP's additional plan to compensate for the loss of earnings that result from a period of disability or a period during which there is a dependent child, the portion of the pension related to the additional plan of the persons concerned would increase. The measures currently provided for by the QPP's base plan would be replaced by earned credits to provide a better understanding to contributors. Finally, those credits would be entered in the years after the child's birth or period of disability, which would allow the persons concerned to be informed faster of the amount recognized for the calculation of their pension.

The QPP does not currently have any particular measure to limit the impact of reduced earnings caused by the necessity to take care of a family member who is ill or in loss of autonomy, except in the case of a child eligible for the Supplement for Handicapped Children Requiring Exceptional Care.

Food for thought

The addition of a measure that would allow to recognize, under certain conditions, the periods of loss of wages or significant reduced earnings caused by caring for a family member, is being reviewed. In the context of Québec's aging population, such an addition to the QPP could make the life of workers concerned easier by protecting the amount of their retirement pension.