Your amounts will be indexed in January

In January each year, your pension under the Québec Pension Plan (QPP) and your child assistance amounts are indexed. In 2015, the indexation rate for QPP pensions will be 1,8% compared with an index rate of 1,06% for child assistance payments.

The rate varies from year to year. Therefore, you cannot be certain of the exact amount you will receive. But did you know that the indexation rates are different for QPP payments and child assistance payments?

Two laws, different calculations 
The calculation method for each program’s indexation rate is determined by law. However, the rate varies from one law to the other, as is the case for our two programs.

The calculation of the indexation rate for the Plan is based on the Consumer Price Index (CPI) for Canada, which is published by Statistics Canada. It is the average Consumer Price Index for a 12-month period. However, if the CPI were lower than the one for the preceding year (deflation), the pension amounts would not change.

The calculation is different for child assistance. First, it is calculated based on the CPI for Québec (excluding prices for alcoholic beverages and tobacco products). In addition, the average CPI is not calculated over the same period as the one used for the QPP.

Over the years… 
Since 1968, the average indexation rate for the Plan is 4,27%. It hit a high in 1982 with 12,3%. For the child assistance program, which came into effect in 2005, the average indexation rate is 1,67%. The highest rate to date was in 2012 with 2,66%.

 Interesting, wouldn’t you say?

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How do VRSPs fit into Québec’s retirement system?

In the past few months, you have probably heard about voluntary retirement savings plans (VRSPs) in one of my blog posts or in the news. VRSPs were implemented last July by the Gouvernement du Québec for the 2 million employees or self-employed workers whose employer does not offer a retirement pension plan.

Since the law governing VRSPs came into force, I have been hearing comments about the pertinence of VRSPs. Several people have asked me to explain how VRSPs fit into Québec’s retirement system.

First, you need to know that the Québec retirement system has three levels representing the main sources of income in retirement:

1. the federal Old Age Security program 
2. the Québec Pension Plan 
3. private pension plans and personal savings 

In other words, our system is made up of public retirement plans (1 and 2), private pension plans and personal savings (3). Any worker who has contributed sufficiently to the public retirement plans could be entitled to benefits. In contrast, private pension plans or plans offered by employers are less accessible. In Québec, only 50% of workers are lucky enough to have access to a private pension plan at work. The other 50% must rely on personal savings only to make up the third level. Let’s be honest: it takes a huge amount of effort and an awful lot of discipline to put money aside for our golden years knowing that we could benefit from that money now.

VRSPs were created to help workers who do not have a pension plan to save in a structured way while benefitting from the advantages usually reserved for group plans. Specialists will tell you that the easiest way to save is through source deductions. VRSPs work with deductions made directly from a worker’s paycheck at a pre-set contribution rate. Another interesting advantage is that VRSP contributions are tax deductible, like RRSPs.

Although VRSPs are mainly for self-employed workers and employees who have no employer-sponsored retirement savings plan, VRSPs are also for anyone else who would like to contribute to them or to transfer their RRSPs. If you are interested, I suggest that you see the list of authorized administrators offering VRSPs.

For 2 million workers, VRSPs replace employer-sponsored retirement savings plans. The amounts accumulated in a VRSP will be added to the amounts in public plans and will allow the workers to be more comfortable in retirement. So, yes, VRSPs do have their place because everyone could use a better retirement.

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How do your Québec Pension Plan contributions work for you?

In my last entry, I mentioned that in 2013, 12,1 billion $ was deducted from salaries as contributions to the Québec Pension Plan (QPP). That’s a lot of money! However, 11,7 billion $ was also paid in benefits that year.

When I wrote those figures, I thought that all workers who contribute to the Plan must be familiar with the various benefits the Plan provides. Wrong! A survey (French only) conducted by the Régie des rentes du Québec in 2012 showed that 46% of adult Quebeckers were unaware that they could receive a pension under the QPP. That’s a troubling finding, considering that most of us contribute to the Plan! It’s a little like paying for an insurance plan without knowing whether it covers your home, car or medications.

The QPP is based on the same principles as an insurance plan. It’s there to give workers who contribute to it basic financial security in retirement or in the event of disability or death.

In retirement 
Over 1,5 million retirees received a retirement pension in 2013. You, too, will be entitled to a retirement pension thanks to your contributions, and you can apply for one as of age 60. However, the amount will be reduced if you apply at that age. To receive the full amount, you’ll have to wait until age 65 to apply.

Is it better to apply at 60, 65 or even later? Good question! Our actuaries have put together a summary of factors to consider that could help you decide.

And if you become disabled while you are receiving a retirement pension, you could also be entitled to an additional amount for disability.

In the event of death
Obviously, your contributions won’t protect you personally in the event of your death. But they do protect your spouse and your children under age 18. In the event of death, a death benefit of 2 500 $ is payable to the person who paid the funeral expenses or to the heirs. In addition, your spouse could be entitled to a surviving spouse’s pension, and an orphan’s pension could be paid for your children under age 18.

In the event of disability
Life is unpredictable, and illness can strike anyone before retirement. If it happens to you and your illness or disability is not related to an accident at work or on the road, you could be entitled to a disability pension. If you have children under age 18, you could also be entitled to a pension for a disabled person’s child.

But there’s one thing you should know—not everyone who claims to be disabled is recognized as such. To receive a disability pension under the Plan, you must be under age 65 and have a serious and permanent disability recognized by the Régie's medical advisors.

As you can see, your QPP contributions play a crucial role in protecting you and your loved ones in retirement or in the event of death or disability.

A final thought: since you contribute a percentage of your income to the Plan, be sure to report all of your employment earnings on your income tax return. To check your earnings, consult your Statement of Participation online.

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How well do you know the Québec Pension Plan?

It’s Thursday, which means it’s payday! When you get your paystub (or consult it online, the ecological way), the first thing you probably do is look to see how much was deposited in your account. That amount is your net salary after deductions. You likely know that an amount is deducted for the Québec Pension Plan, but what do you really know about the plan?

First, some history.
From the time the first colonists arrived until the 19th century, the responsibility for caring for the elderly fell to family or the Church. By the 1950s, Québec’s social policy was a mosaic of measures that were introduced at different times and whose purposes often contradicted one another.

Confronted with the vulnerability of the elderly and the shortcomings in the administration of private pension plans, the government had no choice but to intervene in the complex field of retirement pensions. In the mid-1960s, the Jean Lesage government created the Québec Pension Plan along with the agency that administers it, the Régie des rentes du Québec. It was also at this time that the Caisse de dépôt et placement du Québec came into being.

Based on the principle of an insurance plan, the Québec Pension Plan’s objective is to offer financial security to workers who contribute to the Plan. If you are 18 or over and make more than 3 500 $ a year, you must contribute. In return, the plan offers not only basic financial security in retirement to you, but also financial security to your loved ones in the case of your death or disability.

How is the Plan funded? Without going into the actuarial nitty-gritty, let’s just say that funding is based on contributions by workers and employers, which are used to pay benefits and make up a reserve. In 2014, the contribution rate is 10,35%. Since your employer pays half, an amount equivalent to 5,175% is deducted from each of your pays (to a maximum of 2 535,75 $/year). If you are a self-employed worker, you must pay both the employee and the employer portions.

You think there will be nothing left when you retire? You haven’t heard? THE PLAN IS HERE TO STAY. Every three years, the Plan’s health is checked. According to the actuarial valuation of the Plan as at 31 December 2012, funding is ensured until 2062.

Yes, the Plan is under pressure due to the increasing number of retirees compared to the number of workers. Hold on though, the Plan has a reserve of over 45,9 billion $. The reserve, which is managed by the Caisse de dépôt et placement du Québec, will come in handy when the amounts being paid to beneficiaries outweigh the contributions coming in.

To make it clearer, here’s a glimpse of the Plan.

I’ll give you a general picture of Plan coverage in my next blog entry. Coming soon…

Pension plans: today’s top story

Retirement, defined benefit or defined contribution plans, enhanced Québec Pension Plan benefits, funding rate, shared deficits, 50-50 cost sharing, voluntary retirement savings plans, Bill 3… If you follow Québec news in the slightest, there’s a good chance these terms will mean something to you.

When I started at the Régie des rentes du Québec 10 years ago, if I had predicted that one day everyone in Québec would be talking about pension plans, I probably would have been laughed out of the building. With good reason!

And yet, the heavy media coverage in recent months shows to what extent pension plans are more than a financial matter. In reality, they are a true social issue affecting us all.

  

Radio-Canada recently aired a two-hour special feature on retirement during peak viewing hours. And it was great, by the way! People from all walks of life shared their thoughts, worries and—especially—their solutions to the retirement conundrum. If you missed it, I strongly urge you to check it out.  

So why the sudden fascination with retirement? 

First, because some pension plans have been on the rocks in recent years, specifically certain plans in the forestry sector that have been front-page news. The financial turbulence of the previous decade, the aging population, the increased life expectancy of Quebeckers and the increased maturity of plans (meaning fewer workers for more retirees) have all been key factors in undermining pension plan stability. 

Also, the federal government and the Québec government have been working hard to guarantee a basic retirement income for all. The process started with an overhaul of the public plans. At the federal level, the age of eligibility for the Old Age Security (OAS) pension will be raised from age 65 to 67 between 2023 and 2029. In Québec, changes were made to the Québec Pension Plan to enhance Plan funding and keep experienced workers age 60 and over in the labour force. This should stabilize Plan funding until 2062.  

Though the methods differ, the goal of both levels of government is the same: ensure the long-term stability of our public plans. 

The situation is complicated by other problems. For example, nearly half of Québec workers don’t have a pension plan. That adds up to 2 million employees and self-employed workers. To address the issue, the Québec government has created voluntary retirement savings plans (VRSPs). Now all workers have access to a group retirement savings plan. 

Work is also underway to stabilize defined benefit plans in the municipal, university and private sectors. Municipal plans were even covered in a bill, the Act to foster the financial health and sustainability of municipal defined benefit plans. 

With retirement front and centre in the media, our understanding of the issue has taken a giant leap forward in recent months. The fact that retirement is on everyone’s lips can only help improve financial literacy in Québec.  

We need to know as much as we can about pension plans because, though the issue is complex, it doesn’t affect a single generation only. It affects us all, whether young or old, employed or retired.

5 tips to simplify saving

Tax season is finally over. Some of you may regret not contributing to your RRSP this year. Some of you may be wondering whether you earn enough to even consider saving for retirement. For help with simplifying your saving, check out the 5 tips below.

1. Save early I know 
 I’m not saying anything new here. But it’s the truth. Putting 20 $ aside each week as of age 25 will save you a big headache at age 45! Your total savings probably won’t be enough, but at least they’re a start. And you’ll always have time to save more each week once you’re able to.

2. Save weekly and not annually
Every time you manage to stash some money away, you can be proud of your efforts and watch your investments grow. It’s easier to put 20 $ into your RRSP each week than to frighten your bank account with a 1 000 $ withdrawal in February.

3. Invest your tax refunds and any other unexpected income
You didn’t expect to receive such a big tax refund? Invest some or all of it. There are two ways to think about saving: as a constraint or as a way to spoil yourself...later in life. You deserve the retirement of your dreams, so start working to make those dreams a reality.

4. And what if you retired later? 
I know, I know, that option isn’t very appealing. But consider it for a moment. Delaying your retirement can increase the amount of your pension under the Québec Pension Plan and give you more time to build your savings. Your income will be higher and your expenses lower at the end of your career. That’s when you’ll have more funds available to build your nest egg.

5. Consider phased retirement
Phased retirement gives you the best of both worlds: you work some of the time and are retired for the rest of the time. It can also help give your savings a boost. During phased retirement, you can combine your employment earnings with any retirement income. That way, you get a taste of retired life without necessarily dipping into your retirement savings.

There’s no foolproof formula for saving. You have to make sacrifices, both big and small. I can’t be any more specific because each situation is different and I’m not a financial planner or advisor. But I can tell you one thing: if you think saving is out of the question, talk to a specialist. That person can help you save for a retirement in tune with your goals and personal financial situation.