Fund would help oldest Quebecers
Benefits, starting at age 75, would add $14,564 a year
A long-awaited report aiming to fix a cash-strapped pension system that must also contend with an aging population recommends setting up a “longevity” fund to be paid out to Quebecers starting at age 75. The money for this fund would cost working Quebecers $843 per year. While Premier Pauline Marois appears ready to put the suggestions into action, Montreal also reacts favourably to the report. Kevin Dougherty explains the proposed reforms on
QUEBEC — If proposals to fix the province’s ailing pension system become law, working Quebecers would pay $843 a year, and their employers would add an equal amount to fund a proposed new “longevity pension.”
And before the report was even presented Wednesday, Premier Pauline Marois said legislation to do just that is being prepared and would be presented soon.
Marois called for unanimity among all parties in the assembly, “to protect the retirement of those who have contributed all their lives to retirement plans and others who have not, who need more support.”
The longevity pension is the main recommendation in a 219-page report presented Wednesday by seven pension experts after 18 months of behind-the-scenes consultations and deliberations.
Benefits under the new plan would be paid starting at age 75 — on top of federal Old Age Security and existing Quebec Pension Plan benefits, adding as much as $14,564 a year to a pensioner’s income.
Quebecers are retiring earlier and living longer, putting unsustainable pressure on private pension plans.
The panel of experts was named by the Liberal government of Jean Charest in 2011 because private pension plans in the province have a shortfall, which has grown to $41 billion, between the money they have and the pensions they are committed to paying out.
But the panel, headed by Alban D’Amours, former head of Quebec’s Desjardins financial co-operative movement, broadened its focus to the restructuring of the province’s pension regime, looking 40 years ahead.
The looming problems are considerable.
The proportion of Quebecers working and paying taxes will drop to two working Quebecers for every one over 65 by 2030.
As well, interest rates on investments average 2.3 per cent, far from the 10 per centplus returns once promised by financial planners, touting, “Freedom 55” — the dream of stopping work 10 years before the usual retirement age.
Volatile financial markets suggest there is no respite ahead and Quebecers must make pension adjustments.
About 2.4 million working Quebecers have no private pension plan to supplement their government pensions.
The longevity pension would leave Quebecers with a 10-year period after the normal retirement age of 65 when they would have to either count on personal savings or continue working.
The committee makes no recommendation to raise the retirement age, but Luc Godbout, a Université de Sherbrooke tax expert and panel member, said too many Quebecers now claim their Quebec Pension Plan benefits at age 60 and their Old Age Security at 65, getting less than they could should they keep working and defer their government pensions.
By setting 75 as the age additional benefits would be paid, the committee sends a signal that there is no advantage to early retirement, and suggests that Quebecers save more before they retire.
“We are reinventing savings,” D’Amours said.
And while D’Amours stressed payments into the longevity pension are “not a tax,” Martine Hébert, Quebec vice-president of the Canadian Federation of Independent Business, called the new charge a “payroll tax” that would add to the burden on small businesses in the province, making them less competitive.
D’Amours said calling it a payroll tax is “a bad reading” of the plan, conceived to be 100-per-cent capitalized, meaning that everything paid into the plan will be paid out, without taxpayers contributing.
“It allows people to save more,” he said. “It allows small businesses to assume their responsibilities.
“And it will cost less than what we would have to pay eventually if nothing is done in 10 or 15 years, when the problem of longevity will be even more apparent.”
Without the longevity pension, pensioners with diminished resources would turn to government, seeking relief paid “with our taxes,” D’Amours said.
Yves-Thomas Dorval, president of the Conseil du patronat du Québec employers’ group, suggested the government could reduce other payroll taxes to ease the burden, but said overall the D’Amours report is positive.
“There are measures that will encourage people to work longer,” Dorval said.
He said contributions to pay the longevity pension would remove about $2 billion a year from the economy.
“That is a large impact,” Dorval said. “On the other hand, it is like a transfer for later because it is money that will be used later.”
While primarily intended to help Quebecers with no pension plan, the longevity pension would also ease some of the pressure on private pension plans.
The report’s authors explained that employers could adjust their private pension plans, reducing employees’ payroll pension deductions by a corresponding amount.
And the private plans would not duplicate the benefits of the longevity pension after age 75, easing the underfunding problem for company pensions.
The committee also proposed measures favouring negotiations to resolve the underfunding problem in a 15-year time frame.
Another proposal would allow an employer to unilaterally abolish secondary benefits, such as retirement at full pension before age 65.