Mercer Canada endorses the Quebec government's 2023-2024 budget measures that enhance the Québec Pension Plan (QPP). The actuarial consulting firm is particularly pleased with some of the measures designed to encourage experienced workers to stay in the workforce longer.

Announced by Quebec Finance Minister Éric Girard in his 2023-2024 budget, tabled in the National Assembly on March 21, the new measures will increase some QPP limits to motivate Quebecers to work longer. The proposed changes to the QPP will apply as of January 1, 2024. 

In his budget entitled “A Committed Québec,” Minister Girard said that the government is proposing to use the QPP’s available leeway to let workers aged 65 and over continue working part time:

  • The budget raises the maximum age at which a worker can apply for a QPP pension from 70 to 72.
  • People who continue to work even though they are eligible for the QPP will be able to stop contributing to the plan as of age 65. 
Access at age 60 maintained 

Along similar lines, Minister Girard's budget maintains the option of receiving QPP retirement benefits at age 60 rather than age 65. It does not increase the penalties for those who choose to receive QPP retirement benefits before age 65. 

A person who starts receiving a pension at age 60 will have their pension reduced from the start of payment until their 65th birthday. The reduction factor will range from 0.5 per cent per month for a very small pension to 0.6 per cent for the maximum pension.

The maximum pension an annuitant can expect to receive at age 60 is $836.20 per month, compared with $1306.57 for someone who starts receiving the pension at age 65. The maximum pension at age 60 is 64 per cent of the maximum pension at age 65 (see table Maximum monthly amounts for people who begin receiving their retirement pension in 2023). 

Mercer mentioned access to the QPP starting at age 60 in its February 2023 brief to Quebec's Committee on Public Finance (CPF). Preserving such access “should not affect the financial health of the base plan in the short term. It also ensures harmonization with the Canada Pension Plan (CPP), which we believe is desirable in most cases,” the consulting firm notes. 

Quebec removes irritants 

Mercer's senior wealth advisor F. Hubert Tremblay told The Insurance Portal that he is pleased that Mercer's voice has been heard by the CFP. “The vast majority of the measures proposed in the 2023-2024 budget are consistent with Mercer’s positions,” he says. 

Retaining the ageing workforce was a central concern for Mercer during the consultations. “The changes being made to the QPP should allow more Quebecers to remain employed in the future, with more flexibility. The budget addresses some of the irritants and should succeed in extending people’s careers, on average,” Tremblay says. He adds that the changes were necessary because many economic sectors are facing a labour shortage. 

Tremblay adds that individuals can now stop contributing to the QPP when they turn 65. "With the changes, the irritant disappears. As of age 65, workers are not penalized. If they stop contributing, their pension will not be reduced.” 

By postponing the age at which workers must apply for QPP benefits from 70 to 72, the Budget provides even more flexibility, F. Hubert Tremblay continues. “These people will have an enhanced pension,” he says. In fact, postponing the QPP pension beyond age 65 increases the pension by a factor of 0.7 per cent per month, or 8.4 per cent per year. The actuary points out that the QPP provides a lifetime indexed pension, which is a protection against inflation. “For people who can do so, deferring to age 72 is a wonderful way to manage longevity risk in retirement,” says Tremblay.

Education needed 

Despite the clear advantages, Tremblay says it is difficult to predict how people will react to these new measures. “We won't be able to convince everyone to defer their QPP benefits on Day 1. The (pension) industry, service providers and employers still have a public education job ahead of them, to explain the merits of deferring the start of benefits,” he says. 

Other headwinds will also influence the retirement date, such as the availability of a pension from an employer-sponsored defined benefit plan. “Plan members who are late in their careers will still have access to generous early retirement provisions. They may be more motivated to leave the workforce,” the actuary explains. A defined benefit plan's pension is paid for life. It is often indexed. Tremblay believes the employer will play a key role in explaining the benefits of delaying QPP payments.

For its part, the Quebec government has mandated Retraite Québec to better explain to workers the benefits of deferring the start of the QPP pension, says Mercer. The firm adds that the government will expand Retraite Québec’s role “by making it responsible for conducting research on the financial situation of retirees and the retirement system in general.” 

Security margin  

As Mercer stated in its brief to the CFP, the firm also approves of the government’s maintaining flexibility to minimize the likelihood that the QPP contribution will have to be increased in the future. 

The QPP contribution rate for workers and employers remains the same. In 2023, both the employer and employee contributions were set at 6.4 per cent. This contribution was split into two parts when Quebec enhanced the QPP on January 1, 2019. Workers and employers must each contribute 5.4 per cent to the base plan, which has been in place since 1966. They must each contribute 1 per cent to the additional plan introduced on January 1, 2019.

The income threshold for exemption from QPP contributions is unchanged at $3,500. The maximum QPP pensionable earnings are set at $66,600. The contribution rate is on the portion of income between these two limits. Under the additional plan, the limit will increase for two years, in 2024 and 2025, until it reaches 114 per cent of the maximum pensionable earnings.

Go further 

When it comes to using its available leeway, the plan has not gone far enough, Mercer believes. F. Hubert Tremblay noted that the QPP pension is enhanced by 0.7 per cent per month of deferral (or 8.4 per cent per year of deferral) after age 70. The same increase as that offered to people who defer their benefits beyond age 65. “We believe that the older people get, the greater the enhancement should be, to encourage QPP members to defer their benefits beyond age 70,” says Tremblay.

Mercer sees the extension of the maximum age from 70 to 72 as a first step toward eventually raising the age to 75. Tremblay points out that government’s decisions are based on the cost of the plan. “Not using too much of the safety margin may be a way to keep the plan costs under control,” the senior advisor says.