Actuarial Report of the Québec Pension Plan as at 31 December 2006
The actuarial report is like a bill of health for the Québec Pension Plan. It keeps government, contributors and beneficiaries informed about the Plan's financial changes. The report makes it possible to review the Plan's funding and some of its provisions if need be. The Régie's most recent actuarial report was based on data as at 31 December 2006.
Why make an actuarial report?
Since 1998, pursuant to the
Act respecting the Québec Pension Plan, the Plan must be the subject of an actuarial report at least once every 3 years.
The report is made up of the following elements:
- a projection of income (contributions and investment income) and expenditures (benefits and administration costs)
- a study of the long-term effects of those projections on the Plan's reserve.
The Plan's contribution rate is set by law at 9,9%. The methodology and the demographic and economic assumptions used for the actuarial report were the basis for the 50-year projections of:
- the Plan's long-term funding sufficiency
- the stability of the Plan's funding.
Results of the actuarial report
- The report as at 31 December 2006 indicates that the current contribution rate of 9,9% is sufficient to pay future benefits until 2050.
- The 9,9% contribution rate does not ensure stable Plan funding over the long term. In fact, the projections indicate that the Plan's reserve will be totally depleted in 2051.
- If nothing is done, this situation will require future generations of workers to assume a contribution rate of around 12,6% after 2050.
- The financial pressure on the Plan has thus increased since the last actuarial report and the steady-state contribution rate has increased from 10,30% to 10,54%.
- The public consultation on the Plan that must be held no later than 2010 will provide an opportunity to propose ways of improving the Plan's financial situation without having to saddle future generations of contributors with an excessive load.
Assumptions and key points from the actuarial report
- The population of Québec will increase from 7,7 million people in 2007 to 8,6 million in 2040 and will decrease thereafter, reaching 8,4 million in 2060.
- Life expectancy for men at age 65 will increase from 17,8 years in 2007 to 21,4 years in 2060. For women, the increase will be from 21,3 to 24,0 years.
- The number of contributors will increase from 3,8 million in 2007 to nearly 4,0 million in 2020 and will decrease slightly thereafter.
- Total annual contributions will increase from 9,3 billion $ in 2007 to 11,5 billion $ in 2020 (expressed in 2007 constant dollars). Thereafter, contributions will increase at a slower pace, reaching 18,3 billion $ in 2060.
- The number of beneficiaries of a retirement pension, which is 1,2 million in 2007, will double by 2030. The number will level off at 2,7 million as of 2050.
- In 2007, there are 3 contributors for each retirement pension beneficiary. As of 2020, there will be less than 2 contributors for each beneficiary.
- Total annual benefits, including survivors' and disability benefits, will increase from 8,7 billion $ in 2007 to 16,2 billion $ in 2030 and to 23,3 billion $ in 2060 (expressed in 2007 constant dollars).
- The Plan's reserve as at 31 December 2006 was 33 billion $, which represented 3,6 times the cash outflows for 2007.
- From 2007 to 2010, contributions will be greater than cash outflows and the reserve will thus increase.
- The reserve will be 43 billion $ in 2011 (expressed in 2007 constant dollars), which will represent 4,1 times the cash outflows for 2012.
- Income from the investment of the reserve will be used to bridge the gap between contributions and cash outflows from 2011 to 2032.
- As of 2033, investment income plus contributions will not be enough to cover cash outflows. Sums will have to be withdrawn from the reserve, which will decrease gradually until total depletion in 2051.
Monitoring the Plan's financial situation
ratio of the reserve at the end of one year to the cash outflows of the following year is an indicator of the relative size of the reserve. It indicates whether the Plan has sufficient funds based on the current 9,9% contribution rate.
steady-state contribution rate is an indicator of the Plan's long-term financial stability. It represents the contribution rate that would be required in future years to keep constant the ratio of the reserve to annual cash outflows.
- The steady-state contribution rate is 10,54%, which is 0,64 of a percentage point higher than the 9,9% rate now provided for by law.
- The 10,54% steady-state rate is higher than the 10,3% rate calculated at the time of the 2003 actuarial report. The increase can be explained by the higher-than-expected increase in the life expectancy of beneficiaries and by a slower increase in contributory employment earnings.
- The gap between the steady-state rate and the 9,9% statutory rate is thus greater than 0,3 of a percentage point for the second consecutive actuarial report.
The following chart shows the change in the reserve during the projection period for the 9,9% statutory contribution rate and for the 10,54% steady-state contribution rate.
Ratio of the reserve at the end of one year to the cash outflows of the following year
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