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…