October 11, 2004

About 98 percent of Canadians over the age of 65 draw some form of government pension, whether it be from the Canada Pension Plan and/or, Old Age Security (OAS). But as is often the case, Quebecers have chosen to add their own distinct twist.

All about the Quebec Pension Plan

By Peter Diekmeyer o Bankrate.com

Quebecers are known for their distinct language, culture, tastes and for generally 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.

One of the world's best

Quebec's pension plan 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 spokesperson 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 the 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 that the plan remains stable well into the future.

Similarities with the Canadian Pension Plan

The Quebec Pension Plan's roots go back to the 1960s, when the Quebec government decided to opt out of the federal plan. 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 Quebec pension plan is similar in many respects to the Canadian version, particularly in terms of contributions and pay -outs.

Quebec's plan covers 3.5 million workers. The first $3,500 earned each years is not covered, nor are any 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 that most Quebecers will need to supplement their government pensions if they want to maintain living standards after 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 revenues.

Differences with the Canada Pension Plan

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 at 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 the CPP contributions.

Although nominally independent of the Quebec government, the Caisse has long been considered by the politicians as one of the province's primary economic vehicles. In addition to being a heavy 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.

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 ten years. And 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, which 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 Quebec Pension Plan's biggest challenge has been maintaining its solvency to match the increasing demographic challenges of coming years. Quebec, --like Canada-- has been plagued by low birth rates for some time, which, --coupled with the coming retirement of the baby boomers-- 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. He can be reached at: peter@peterdiekmeyer.com


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