Is the Québec Pension Plan in good health?

Since 1966, the Québec Pension Plan (QPP) has provided workers with basic financial protection in the event of retirement, death or disability. Retraite Québec has recently carried out an overview of the Plan's health. We spoke to Jean-François Therrien, Chief Actuary of the QPP, to find out more.

Quebeckers are relying, in part, on the Québec Pension Plan benefits for their retirement. How is the QPP faring?

Our latest Évaluation actuarielle du Régime de rentes du Québec au 31 décembre 2021 (actuarial valuation of the Québec Pension Plan as at 31 December 2021; French only) confirms it: it is in excellent financial health. Our contributors and beneficiaries need not worry. The QPP is sound and pensions can be paid for at least the next 50 years to every person entitled to them. It is a projection horizon of our actuarial valuation, produced every three years, as provided for by law. As a result, the contribution rate that workers are currently paying is enough.

We notice that the current retirement systems of certain countries are weakened by their aging population. Should we be worried?

I want to reassure you: the QPP is not weakened by that demographic phenomenon because we took it into account to establish our financial projections of the Plan. Therefore, although Québec's population is also getting older and the proportion of individuals aged 65 or over increases compared to the total population, there is no need to worry. The QPP is adequately funded. Unlike other pension plans, it does not only rely on contributions made by workers to pay the benefits of people who are retired. Contributions are also used as a nest egg, which is invested and generates returns on investments. For example, the latest actuarial valuation shows that the projected cash inflows for 2025, that is, the contributions made by workers combined with investment income, will be near $26 billion. They will be sufficient to fund the projected cash outflows for the same year, which means benefits for beneficiaries, which will nearly reach $20 billion.

How exactly are the QPP funds managed?

It is the Caisse de dépôt et placement du Québec  that manages the funds of about $100 billion that are considered as the QPP's assets. Since 1966, the average annual return obtained has been greater than 8%. Therefore, even if a year has been marked by a negative return, the long-term return is positive. In addition to being beneficial for Quebeckers, the QPP's assets have a favourable environmental and social effect , because the Caisse takes into account those aspects in each one of its investments. Those aspects are first considered by the Caisse when it selects its investments, but also when it uses its expertise to improve the practices of hundreds of businesses that make up its portfolio. Therefore, our contributions help in reducing greenhouse gas emissions, fostering diversity and inclusion, and building a more just society in Québec and across the globe.

Furthermore, regarding rates of return, people sometimes ask us whether it would be more beneficial to invest their contributions to the QPP themselves in the hopes of obtaining a better return. What do you think about that?

First of all, we wish to point out that rates of return on investments under the QPP are greater than rates of return on individual investments, like the registered retirement savings plan (RRSP). The QPP's investments are managed by specialists, while reducing management fees. Our public pension plan is the foundation of Québec's retirement system. All individuals aged 18 and over who are working must make contributions to the plan. The QPP earns them a pension guaranteed for life that is indexed to the cost of living. As a result, it protects them from the financial risks related to retirement: longevity risk, rate of return risk and inflation risk. As much as possible, it is better to wait until age 65 or over to apply for it in order to obtain the full amount of the pension or even more. If a person receives his or her pension before age 65, he or she will rather be receiving a reduced pension for the remainder of his or her retirement. In most cases, we should not count only on that pension because it is not intended to cover all expenses associated with our financial needs. It is mostly a base that must be combined with the workplace pension plan and/or personal savings. Those savings can be invested depending on our investor profile: in a more cautious or dynamic way, according to our tolerance to risk. To make sure you are making the best choices, why not consult a financial planner?