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All about the Quebec Pension Plan
By
Peter Diekmeyer • Bankrate.com
Quebecers are known for their distinct language, culture,
tastes and generally for doing things their own way. Nowhere is
this more apparent than in the fact that Quebec is the only province
to administer its own pension plan.
The Quebec Pension Plan (QPP) is one of the provincial
government's proudest achievements, one its officials never tire
of talking about.
"It's one of the best performing plans in the
world," says Herman Huot, a spokesman for the Régie
des Rentes du Québec. "And it is an important economic
development tool."
Huot isn't just talking through his hat. Earlier this
month, Quebec government officials released an internal study of
pension plans from eight developed nations, which concluded that
Quebec's plan was one of the few that is well-positioned to tackle
coming demographic challenges.
The QPP also stands out because of its mandated triennial
actuarial review, coupled with a public consultation process that
takes place every six years, in order to make sure the plan remains
stable well into the future.
Many similarities to Canadian
Pension Plan
The QPP's roots go back to the 1960s, when the Quebec government
opted out of the federal Canada Pension Plan (CPP). Much of this
was due to a desire on the part of the provincial government to
use the money generated by the plan to fund its own economic priorities.
However from the start, Quebec officials wanted to
maintain a comparable level of services across Canada. As a result,
the QPP is similar in many respects to the CPP, particularly in
terms of contributions and pay-outs.
Quebec's plan covers 3.5 million workers. The first
$3,500 earned each year is not covered, nor are earnings in excess
of $40,500. Like the federal plan, the QPP is designed to replace
only 25 percent of the average earnings during the contributor's
career, which is not very much. This means most Quebecers will need
to supplement their government pensions if they want to maintain
their standard of living in retirement.
During 2003, premiums ran at 9.9 percent of pensionable
earnings, with the contribution shared equally by workers and employers,
each of whom contributed 4.95 percent of the employee's salary that
falls between the basic exemption and the maximum pensionable earnings.
Self-employed workers pay both parts.
The maximum pay-out in 2004 for the Quebec plan amounted
to $814.17 per month, or approximately $10,000 per year.
Like CPP beneficiaries, low-income QPP recipients
are also entitled to Old Age Security and Guaranteed Income Supplements
to boost their monthly income.
More freedom to invest
The biggest difference between the QPP and CPP has been in the management
of their accumulated contributions. The QPP's funds, which hit $15.4
billion as of March 31, 2003, are invested by the Caisse de Dépot
et de Placement du Québec.
Until recently, the Caisse has traditionally had far
more freedom to invest its money than the CPP Investment Board,
which manages CPP contributions.
Although nominally independent of the Quebec government,
the Caisse has long been considered by politicians as one of the
province's primary economic vehicles. In addition to being a strong
buyer of Quebec government securities, the Caisse has also been
a key player in taking equity positions in large Quebec companies,
particularly those in which the government wants to keep control
in local hands, such as when the Caisse took a position in Quebecor
Media to help it acquire Vidéotron, a local cable company,
in 2001.
Despite the fact that the Caisse's investments have
not always been made solely from a business point of view, returns
have been healthy, averaging 7.4 percent during the past 10 years.
Last year, the Caisse's returns hit 15.2 percent, compared to just
11.3 percent for the CPP Investment Board.
But fund management isn't the only difference between
the CPP and the QPP. There are also numerous technical provisions
and eligibility criteria that differ between jurisdictions.
For example, the QPP eligibility criteria for invalidity
benefits stipulate that the applicant must not be able to function
in his current line of work, while CPP criteria say that he must
not be able to do any kind of work. Although many of these distinctions
may seem minor, for those who are considering moving from one jurisdiction
to another, it pays to be informed.
Dealing with the demographic
strain
The QPP's biggest challenge has been maintaining its solvency to
match the increasing demographic challenges of coming years. Quebec,
like the rest of Canada, has been plagued by low birth rates for
some time, which, coupled with the coming retirement of the baby
boomer generation, has put strain on its pension obligations.
However in 1998, the QPP instituted a number of measures,
including raising contribution levels, that have guaranteed the
plan's future at least until 2050.
Peter
Diekmeyer is the Montreal Gazette's management columnist.
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