Draft regulations for the implementation of dynamic pensions in Quebec

On May 28, 2025, the Quebec government published draft regulations amending the Regulation respecting supplemental pension plans (Regulation respecting SPPs) and the Regulation respecting voluntary retirement savings plans (Regulation respecting VRSPs). The purpose of these draft regulations is to allow defined contribution plans and voluntary retirement savings plans (VRSPs) to implement dynamic pension funds, also known as variable payment life annuities (VPLAs). There will be a comment period ending July 12, 2025, after which the regulations will be adopted. Final modifications will then come into force on the fifteenth day following the date of their publication.

Last fall, the Quebec government introduced Bill 80 to implement provisions announced in the Budget Speech delivered on March 12, 2024. Bill 80 amended the Supplemental Pension Plans Act and the Voluntary Retirement Savings Plans Act in order to allow defined contribution plans and VRSPs to offer dynamic pension funds as a new option for the decumulation of amounts accrued in these plans at retirement (see our bulletin for more information).

In accordance with the provisions of Bill 80, these plans will be allowed to set up one or several dynamic pension funds whose assets would be separate from the rest of the plan’s fund. Upon the application of a member who has stopped working¹ and is at least age 55 (unless the plan sets a lower age), some or all of the amounts accrued in the plan will be transferred to the dynamic pension fund and used to pay the member a pension.

The amounts transferred into the fund will be converted into a pension amount that is payable for the lifetime of the member, who will thus become a beneficiary of the fund. The pension amount will vary annually based on the fund’s experience, which is impacted by the returns obtained on the separate assets in this fund and by the mortality experience of all members receiving a pension from the fund.

The draft regulations to amend the Regulation respecting SPPs and the Regulation respecting VRSPs follow on from Bill 80 and set out the terms applicable to dynamic pension funds, which are similar for both plan types². As such, the terms described in this bulletin apply to both defined contribution plans and VRSPs.

The draft regulations set out the method for calculating the amount of the dynamic pension, which is determined by dividing the capital transferred to the fund by a pension factor. In terms of the pension factor, it is important to note that:

• a dynamic pension fund will be allowed to offer one or several reference rates (i.e. the interest rate used to calculate the amount of the pension), enabling the fund’s beneficiaries to choose from among the available rates;
• the mortality assumptions used to calculate the pension amount will need to be sex-specific, as is the case when calculating transfer values in Quebec, for example;
• it will be possible to pool the mortality experience of several dynamic pension funds within the same plan, in which case the mortality assumptions for these funds will need to be identical.

In addition, the draft regulations include various items that can be provided for by plans that offer dynamic pension funds:

• Pensions will be paid on a monthly basis, although a plan may provide for more frequent payments (e.g. every two weeks).
• A plan will be allowed to provide for a minimum amount that a member must transfer into a dynamic pension fund in order to be entitled to the payment of a pension, as well as a maximum cumulative amount that the member may transfer into a dynamic pension fund or into all dynamic pension funds for which the mortality experience is shared.
• In terms of death benefits, a plan will be allowed to offer a guaranteed capital refund type of death benefit, which corresponds to the excess of the amount transferred to the fund on the total of the pension amounts paid to the fund’s beneficiary, taking into account the returns obtained by the fund.

The pension amount paid from a dynamic pension fund will be adjusted as follows:

• At the end of each fiscal year of the fund, the pension must be adjusted to factor in the fund’s return. If the return is higher than the reference rate, the pension will increase, and vice versa. The return is calculated based on the fund’s audited financial report.
• The pension must also be adjusted to take into account the mortality experience of the fund’s beneficiaries at the frequency provided for in the plan or, if the plan so provides, when the administrator so decides. This adjustment must be made at least every three years and must be calculated after applying the adjustment to account for the fund’s return.
• Lastly, the pension must be adjusted in the event of a change to the mortality assumptions. This adjustment will need to be calculated after applying any adjustments to account for the fund’s return and mortality experience.

When calculating the first pension adjustment to account for the fund’s return, it will be necessary to take into account the return obtained between the date of transfer of the sums to the fund and the end date of the fiscal year, according to the method provided for in the plan.

These adjustments will need to be calculated on the end date of the fund’s fiscal year; however, the payment of the pension adjustment may take effect at a later date, and payment of the adjusted pension amount must take place no later than during the seventh month following the end of the concerned fiscal year. The first adjusted pension payment will need to reflect any amounts due or to be recovered since the adjustment became effective.

In order for the pension amounts to be adjusted to account for the mortality experience, a dynamic pension fund must be the subject of an actuarial valuation.

• The first such valuation will need to take place no later than the end of the fund’s third fiscal year. Thereafter, the fund will need to be the subject of a valuation at least every three years after the date of the fund’s last valuation taking into account the mortality experience.
• The fund must also undergo a valuation every time an adjustment is calculated to account for the mortality experience, when this experience is shared among several funds included in the plan.

In addition, the fund must be the subject of an actuarial valuation in the event of a change to the mortality assumptions or whenever required by Retraite Québec. Furthermore, as soon as a fund is the subject of an actuarial valuation, every other fund included in the plan must also undergo such a valuation.

A report regarding this valuation must be sent to Retraite Québec within six months of the end of the concerned fiscal year. When the pensions are adjusted solely to account for the fund’s return, no actuarial valuation is required.

A dynamic pension fund must be terminated and wound-up if the number of beneficiaries of the fund receiving a lifetime pension falls below ten. This number excludes beneficiaries of the fund who are receiving a temporary pension under a death benefit option with a guarantee period.

When a dynamic pension fund is terminated, each beneficiary of the fund will be entitled to a share of the fund’s assets in proportion to the liabilities related to their benefits on the total liabilities of the fund. Beneficiaries of the fund will be able to choose between purchasing an insured annuity with the value of their benefits or transferring their benefits to an authorized pension plan.

The administrator of the dynamic pension fund will need to send the following documents to the beneficiaries of the fund:

• an estimate statement, within 60 days following a member’s application for the payment of a dynamic pension, containing information such as an estimate of the pension amount they could obtain under each of the options offered based on the amount they intend to transfer to the fund, and illustrations enabling the member to understand that the amount of the pension will vary after it has been determined;
• a notice of payment, no later than 60 days after the date the sums were transferred to the fund but before payment of the pension begins, containing information such as the pension amount determined taking into account the exact amount of the sums transferred, and the terms related to the adjustment of this amount;
• an annual statement of benefits, at least 30 days before the first payment of the adjusted pension amount, containing information such as the pension amount before and after the adjustment, a breakdown of the adjustment made based on the cause, and the fund’s rates of return during the fiscal year.

Quebec is the first province to establish a regulatory framework to allow for the implementation of dynamic pensions. We are proud to have been a significant player in the development of dynamic pensions, which will transform the financial approach to retirement for many Quebecers. These draft regulations are being published at a time when access to innovative options for converting savings into income is essential for over two million individuals over the age of 55 in Quebec.

Each individual will be able to transfer amounts from their retirement plan, RRSP, or RRIF to a VRSP offering a dynamic pension fund, thus benefiting from this new decumulation option.

The dynamic pension will offer the predictability of a lifetime retirement income and will eliminate complex decisions for the decumulation of accumulated sums. By allowing risk pooling among participants, it will provide a higher income than an approach where risks are managed on an individual basis.

It will truly allow for faster use of savings without the fear of running out.

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¹  The condition of terminating employment does not apply to a member of a VRSP not established by an employer.
²  It should be noted, however, that the draft regulation to amend the Regulation respecting VRSPs provides for amendments that are specific to VRSPs, particularly with regard to the provisions governing the funds’ investments and the withdrawal of variable benefits, in order to harmonize them with those provided for defined contribution plans.

Normandin Beaudry’s pension and savings experts can provide you with a comprehensive analysis of the opportunities dynamic pensions can provide for your organization. Would you like more information? Contact your Normandin Beaudry consultant or email us.