Report by the Committee of Experts on the Future of the Quebec Retirement SystemLinkedIn
There, in black and white
NB Bulletin Vol. 16 N. 2, April 2013
Yesterday, the committee of experts on the future of the Quebec retirement system, chaired by Alban D’Amours, released its report. In the coming weeks, a series of four communiqués will present the key recommendations in greater detail.
In the interim, this is an overview of the key aspects of this report.
At inception, the committee of experts was charged with studying the complementary retirement plans under the supervision of the Régie des rentes du Québec, i.e., mainly defined benefit plans. At the request of the Government of Quebec and the stakeholders consulted, the mandate took on a more comprehensive scope: the financial security provided by the Quebec retirement system as a whole.
Objectives, Values and Principles
The committee of experts determined the basic premises of this exercise by returning to the very foundations of a retirement system.
The social partners were of like mind on two objectives:
The committee retained three values:
Four principles guided the recommendations:
Based on these fundamentals, the committee of experts issued 21 recommendations that it divided into five categories, three of which concern defined benefit pension plans.
For a few years now, falling interest rates, pension fund returns and increased life expectancy have led to a significant deterioration in the financial situation of defined benefit pension plans in Quebec, like elsewhere.
The committee of experts believes the current pension plan situation is no reason to give up. It is important to favour the maintenance of defined benefit pension plans, which provide a greater guarantee of financial security at retirement.
To do so, the committee issued recommendations aimed at simplifying the existing financing rules, protecting basic plan commitments and ensuring these plans are viable for future generations:
In general, the new “enhanced funding method” will mean that benefits for future services will cost more, and that deficit amortization costs will more closely reflect the actual costs:
The committee of experts proposes a set of measures for better governing and managing retirement plans, including:
The committee of experts proposes that the parties agree on how to restructure retirement plans to make sure they endure. Therefore, in the five years after the new funding rules come into effect, employers and pension plan participants (employees, retirees and participants entitled to a deferred annuity) can agree to review or suspend certain vested rights, including:
The agreement between the parties must be negotiated with participants or they must be consulted. In the fourth and fifth years, if the parties do not reach an agreement, employers may suspend or revise the pension indexation by making a payment to the plan that would reduce the deficit in proportion to the impact of any indexation changes.
To reduce the risk of Quebec workers outliving their retirement savings, the committee of experts recommends implementing a longevity pension, a new plan exclusively for workers, managed by the Régie des rentes du Québec.
The longevity pension will be a lifetime pension payable as of age 75, but no earlier. It will provide for the annual accumulation of an annuity of 0.5% of earnings (up to the maximum pensionable earnings, i.e., $51,100 in 2013). This longevity pension will most benefit those who contribute to it for the longest, i.e., young workers.
To ensure intergenerational equity, the longevity pension will be entirely financed in advance according to realistic assumptions that more closely reflect actual costs. The total cost, estimated at 3.3% of earnings, will be shared equally between workers (1.65%) and employers (1.65%). This cost could be reduced or cancelled by reallocating current savings.
The committee of experts insists on a sound diversification of retirement income sources and recognizes the importance of savings plans and personal savings.
It recommends the swift implementation of voluntary retirement savings plans (VRSP), with some changes to make them more effective. To better meet the needs of savers, the committee also proposes measures to optimize the disbursement of amounts in the savings plans.
Normandin Beaudry consultants will continue to analyze the implications of these recommendations for the retirement system and for Quebec workers. This analysis will be the subject of a series of four bulletins in the coming weeks.
Please feel free to contact us for additional information.
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