Key Elements of the Quebec Pension Plan Enhancement: For a Better Understanding and AppreciationLinkedIn
There, in black and white
NB Bulletin Vol. 20, N. 20, November 2017
With the tabling of Bill 149 on November 2, Minister of Finance Carlos Leitão announced the enhancement of the Quebec Pension Plan (QPP). This announcement is positive for all workers, particularly the younger generation, as the maximum retirement pension benefit will increase from $13,400 under the current QPP to more than $20,000.
Outlined below are the key changes that were announced, which we examined in detail during a breakfast seminar and a webinar held on this topic last week.
The current Quebec Pension Plan, known as the “base plan”, will be gradually enhanced through the introduction of a second plan—the “additional plan”, which is divided into two components: the first component begins in 2019, while the second kicks in in 2024. Let’s look at how the contributions and benefits will change.
The base plan already provides retirement benefits of 25% of pre-retirement earnings, up to the maximum pensionable earnings (MPE, which is $55,300 in 2017).
Additional contributions will also be gradually phased in from 2019 to 2025. They will be shared equally by employers and employees and will be placed in a fund separate from that of the base plan. Unlike the base plan, the additional plan is designed to be fully funded by the contributions to be paid into it. The graphic below shows the contributions in percentage of pensionable earnings for each component:
While the additional contributions are equal to 2% in the first component of the additional plan and to 8% in the second component (shared equally between the employer and the employee), ultimately, these will only represent approximately 0.8% to 1.3% of a worker’s earnings. The table below shows the contributions, in percentage of earnings, taking into account the basic exemption of $3,500.
A practical application
The maximum annual benefits under the current base plan amount to approximately $13,400 for a retirement at age 65. Retirement benefits will increase to more than $20,000 with the additional plan, in today’s dollars. This represents an increase of approximately 50% of the current plan’s maximum retirement benefits!
Evolution of the reserve for future benefits
The additional plan’s assets are projected to exceed those of the base plan in 2041, meaning it will take approximately 20 years for the additional plan to build up the same assets as the base plan did after 75 years! By 2065, assets of the additional plan are expected to reach $800 billion.
A look ahead
The introduction of new provisions to the Quebec Pension Plan, very similar to those of the Canada Pension Plan introduced over a year ago, is likely to please all Quebec workers, especially the younger generation. The additional plan will significantly improve retirement benefits at a reasonable cost, thereby improving the security at retirement for all workers.
Please feel free to contact us for additional information.
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