Pension plans in Quebec are feeling pressure from an aging population that is living longer. To deal with this challenge, the province announced in its 2011-2012 budget that adjustments will be made to the Quebec Pension Plan (QPP) and a new voluntary retirement savings plan will be implemented.
The changes to the QPP are important because by 2013 or 2014, the number of people leaving the workforce will outnumber those entering it, said Florent Francoeur, president and CEO of the Ordre des conseillers en ressources humaines agréés (CRHA). To combat this trend, there are a few options, he said, including increasing immigration and boosting workforce productivity. But another tactic is to keep older employees working longer.
To that end, pension payments will be adjusted to reward later retirement. Workers who apply for QPP after age 65 will see a monthly increase of 0.7 per cent as of Jan. 1, 2013, up from the current 0.5 per cent boost. Conversely, workers who apply for benefits before age 65 will see the monthly reduction rise from 0.5 per cent to 0.6 per cent in the case of a maximum pension.
The contribution rate will also increase from 9.9 per cent to 10.8 per cent in increments of 0.15 percentage points per year.
The changes do not add up to a huge amount of money but are still significant, said Francoeur.
“What is important there is the fact that, for the first time, we have a strong message by the government that we have to make sure we keep employees in the workforce the (latest that) we can,” he said.
The new measures would encourage one-third of workers to remain in the workforce longer, according to a survey of 501 workers conducted by the CRHA, Quebec’s HR association. And for respondents who are inclined to continue working, more than one-quarter (26 per cent) said they would consider retiring after age 70, up from nine per cent before the new measures were announced. On the other hand, while 45 per cent were considering retiring before age 65 prior to the budget announcement, only six per cent are now thinking along these lines.
VRSP to be implemented, eventually
The Quebec government also said it is committed to amending legislative and regulatory frameworks to allow the development of a voluntary retirement savings plan (VRSP) based on the federal government’s pooled registered pension plan (PRPP) framework.
Quebec has always been cutting edge when it comes to pensions, said Lorraine Allard, a partner at the law firm McCarthy Tetrault in Toronto.
“(Quebec’s) got a lot of the structure, the government support in place, more perhaps than other provinces do because it administers the QPP. So maybe that’s why it’s in a better position to come up with an initiative than other provinces might be,” said Allard.
To succeed, VRSPs in Quebec must feature simplified membership and operating terms and conditions, provide default investment options with low management and spare the employer from the bulk of the administrative operations, said the government. And if employees do not want to participate, they can opt out.
“It is imperative that the foundations on which VRSPs rest ensure the participation of a large number of workers so that they benefit from low-cost pension plans that perform well,” said the government in its paper A Stronger Retirement Income System.
Hopefully, when details of this plan come out after consultation, the number of options would be seriously restricted and there will be a default option, said Michel St-Germain, a Montreal-based partner in Mercer’s retirement, risk and finance business.
“For this product to be successful, it has to be cheap and for it to be cheap, it has to be simple,” said St-Germain.
But the mandatory requirement is a concern, he said.
“(Smaller employers) have other priorities to offering options to employees, especially options that employees can get on their own at the bank on the corner of the street.”
Employers would be responsible for choosing a VRSP, deciding whether or not to contribute, automatically enrolling all eligible employees and withholding at source the amounts contributed by employees.
“Businesses will be spared from the administrative operations tied to the management of a pension plan,” said the government.
The concept of third-party administration really doesn’t exist yet, except in Quebec and Manitoba where there are simplified pension plans, so the question of fiduciary responsibility with a VRSP is still unanswered, said Allard.
“The whole point of the third-party administration is so that the employer is not considered to have a fiduciary role.”
Quebec’s simplified pension plan is a “no brainer,” said St. Germain, but it’s unlikely the two types of pension plans would co-exist. “(The VRSP) is virtually the same thing,” he said.
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