Strengthening the Plan's sustainability
Adapting Québec Pension Plan benefits
The following measures concern retirement, disability and survivors' benefits under the Plan. They take into account the socioeconomic and demographic changes that affect the Plan as well as the observations on retirement in Québec.
Due to increasing life expectancy and the importance of keeping experienced workers employed, it has been proposed to explore:
- raising the minimum eligibility age for early retirement under the Plan.
Currently, the minimum age is 60. By raising that age, experienced workers would be encouraged to stay in the labour market longer, and the retirement incomes of future generations of retirees would be improved. It is also possible that there would be more Plan contributors aged 60 or over, which could help stabilize contributions.
Since workers over 60 are now in better health and work conditions have improved, it has become important to keep them working as long as possible. It has therefore been proposed:
- to simplify and standardize disability benefits as of the minimum age of eligibility for a retirement pension.
For disabled persons aged 60 to 64, the Plan provides for three types of disability, each with its own eligibility requirements:
- total disability
- flexible disability
- disability occurring after retirement pension payments begin (additional amount for disability).
For example, a person aged 62 who is unable to carry his or her former employment due to health problems, but who is able to do other work, is not covered for the disability if he or she has been receiving a retirement pension for more than six months. To simplify and standardize disability protection as of the minimum age of eligibility for a retirement pension, the proposed measure would implement uniform coverage in the event of disability for persons aged 60 to 64 and would broaden the coverage by offering it to both workers and retirees who continue to work. In our example, should the measure be implemented, the person could receive the additional amount for disability.
Since the number of households with two employment incomes is growing and the number of women in the labour market is continuing to increase, it has been proposed:
- to modernize the fixed portions of the surviving spouse's pension.
The surviving spouses' pension is made up of a fixed portion and a variable portion that is calculated based on the earnings recorded under the deceased spouse's name. The fixed portion varies, in particular, according to the age of the surviving spouse and increases, sometimes greatly, at age 45. To take into account the increasing number of women in the labour market and social changes, the fixed portions would vary according to the beneficiary's age when payment of the pension begins and be adjusted according to the inflation rate throughout the payment period. Therefore, when one spouse dies:
- the surviving spouse under the age of 45 with no dependent children would receive $121 (in 2016)
- the surviving spouse under the age of 45 with dependent children would receive $438 (in 2016)
- the surviving spouse aged 45 or older would receive $438 (in 2016).
- revise the maximum combined pension (retirement pension and surviving spouse's pension).
The maximum amount would be calculated differently for a person receiving a retirement pension and a surviving spouse's pension at the same time (combined pension). The amount would continue to be established based on the age of the surviving spouse's pension beneficiary when he or she begins receiving a retirement pension, with age 65 as the cut-off. The amount would be subsequently indexed to inflation. The maximum amount of the combined pension would be between $699 and $1092 (in 2016) for future surviving spouse's pension beneficiaries.
The effects of the measures on the steady-state contribution rate
The steady-state contribution rate makes it possible to ensure stable Plan funding on a long-term basis. This rate is the contribution rate that would need to be applied in future years to maintain the ratio of the reserve to yearly cash outflows on a long-term basis. With the proposed measures concerning benefits under the Plan, the steady-state contribution rate would remain essentially the same at 10.87%.
Ensuring a stable and sustainable contribution rate
Since the Plan was first set up, its funding has been reviewed several times, which has led to a progressive increase in the contribution rate. In order to stabilize Plan funding and to protect the competitiveness of companies in Québec, the measures below have been proposed.
Guarantee full funding of proposed improvements to the Plan
This measure is based on the recommendations in the report entitled Innovating for a Sustainable Retirement System (the D'Amours report). While protecting intergenerational fairness, the Plan enhancements would be funded as much as possible by the people who will benefit from them. This measure would also help maintain stable Plan funding.
Introduce a longevity factor
Since the Plan first came into effect in 1966, life expectancy at age 65 has increased 1.5 months per year. From 1996 to 2013, it rose from 16 to 22 years for women and from 13 to 19 years for men. Due to that increase, the length of the benefits payment period has exceeded projections. A longevity factor would ensure that the retirement pensions of new beneficiaries would be adjusted in accordance with life expectancy. Out of concern for intergenerational fairness, the Plan costs related to the increase would not be borne solely by future generations of contributors.
Index pensions to inflation in Québec
To further stabilize the Plan's contribution rate, pensions could be indexed to the consumer price index (CPI) for Québec instead of the consumer price index (CPI) for Canada.