Quebec is currently facing major problems, such as the aging of the population, the financial vulnerability of a large number of elderly people, and the labor shortage.
One of the solutions? Raise the minimum age of eligibility for a QPP (Quebec Pension Plan) pension from 60 to 62 years. And also raise the maximum age to start withdrawing said pension from 70 to 72 years old. The increase would be staggered over a period of seven years.
This is what the chief actuary of the QPP, Jean-François Therrien, proposes, among others, in the document which will be the subject, starting in January, of the vast public consultation on the QPP launched last week by Finance Minister Eric Girard.
Currently
I remind you that the full QPP pension is paid when you start withdrawing it at age 65. When you choose to cash it earlier, the annuity is reduced according to the number of months, at the rate of 0.6% per month. A person who decides to withdraw it at age 60 will see their pension reduced by 36% compared to the full pension at age 65.
And the person who prefers to wait until age 70 will be entitled, for his part, to a pension increased by 42%, ie an increase of 0.7% for each month elapsed since his 65th birthday.
The targeted bonus
If the Legault government agrees to go ahead with the proposal to raise the minimum age from 60 to 62, chief actuary Jean-François Therrien has calculated that a person (entitled to the maximum amount) would receive a 22% higher pension for life, or $2,166 per year.
In 2021, there were 46,700 people who applied for their pension at age 60.
By raising the maximum age of eligibility for a QPP pension from 70 to 72, a person could obtain a 12% higher pension for life. For a person entitled to the maximum amount, this represents an additional amount of $2,527 per year.
A question of life expectancy
As the QPP’s chief actuary explains in the public consultation document, the life expectancy of the population is increasing, as is the length of retirement.
In 1966, a 65-year-old could expect to live another 15 years on average. Today, it is estimated that a person who retires at this age will have a retirement of about 21 years. In about forty years, the retirement of such a person will last more than 24 years.
“To ensure that they have sufficient income for the entire duration of their retirement, workers will therefore have to save more, work longer and/or postpone the start of payment of their QPP retirement pension. »
In 2019, some 41% of people earning $30,000 to $50,000 a year had no retirement savings, apart from their QPP contributions.
Delaying eligibility for the QPP pension by two years, from age 60 to 62, would help solve two problems: the financial fragility of many retirees and the labor shortage.
The benefit of the QPP
Unlike many private pension plans, the QPP offers a pension that is fully indexed to the cost of living index. Over a long period, this is obviously worth its weight in gold.
Another advantage: it is a fully guaranteed life annuity, protected from the upheavals of the financial markets and the risk of bankruptcy.
The QPP has a solid financial reserve. So much so that the contribution rates to the basic plan (10.80% of contributory income) and to the additional plan (2.0% of contributory income) will now be capped.
At the end of 2021, the QPP reserve stood at $106 billion. In 25 years, it would reach $553 billion. And in 50 years, nothing less than $1,800 billion.
It is expected that more than half of the assets of the QPP reserve will come from the investment income of the Caisse de depot et placement du Quebec.