While the Association of Canadian Pension Management is in favour of enhancing the Quebec Pension Plan, it’s calling for a targeted solution to the problem of inadequate retirement income in the province.
In a submission to the public consultation on QPP reform, Bryan Hocking, the association’s chief executive officer, noted that any changes to Quebec’s retirement income system must target middle-income earners who aren’t participating in a workplace pension plan. “There seems to be a consensus that many middle-income earners working in the private sector without access to a workplace plan are not adequately saving for their retirement,” he wrote.
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Meanwhile, among workers without employer-provided pensions in the province, those with lower incomes are already achieving satisfactory income-replacement levels thanks to the QPP, old-age security and guaranteed income supplement benefits, according to the letter. Most higher-income earners without access to a workplace plan seem to be saving adequately on their own, it suggested.
Early critics of Quebec Finance Minister Carlos Leitao’s consultation document on the future of the QPP included three unions that the proposals “unacceptable” and said the changes would knock the provincial pension plan out of line with the Canada Pension Plan.
Read: Quebec unions call proposed QPP reform far weaker than CPP changes
In its letter, the ACPM said the enhancements to the CPP would require low-income earners to make additional contributions that would result in no — or almost no — additional income in retirement. “The rules pertaining to the [guaranteed income supplement] stipulate that if a pensioner receives income other than the OAS and an employment income of up to $3,500 (including supplementary QPP and CPP benefits), the GIS must be reduced by 50 per cent of that other income,” wrote Hocking.
“For pensioners receiving a GIS because their retirement income is low enough, it follows that enhanced QPP/CPP benefits under the federal proposal would have the effect of reducing the GIS amount. This interaction between the GIS and QPP would result in the pensioner receiving a combined retirement income that has not been enhanced enough in light of the additional contributions paid throughout his or her working years.”
The ACPM also noted one major difference in comparing the QPP proposal to the federal plan is that by excluding the first half of the year’s maximum pensionable earnings from the enhancement, the final result for employees who earn an income equal to the earnings threshold during their career would be a supplemental benefit that represents 50 per cent of what the federal plan provides.
“The enhanced benefits under the Quebec proposal seem too low to actually address the problem of inadequate retirement income for middle-income earners not participating in a workplace pension plan,” wrote Hocking.
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ACPM’s suggests excluding the first half of the earnings threshold from the enhancement and applying an accrual rate that’s higher than the federal plan. “We believe an additional accrual rate of 16.6 per cent for the second half of the [earnings threshold] . . . would achieve a supplemental benefit comparable to that under the federal proposal . . . while avoiding the problem of reducing the GIS for low-income earners,” wrote Hocking.
If prompted to choose between the QPP proposal or the CPP plan, the ACPM said it would lean towards the federal option because it would help harmonize the Canadian retirement income system, further improve the financial position of middle-income earners without a pension plan, allow national employers to adjust and standardize their plans and make the guaranteed income supplement consistent for all provinces.
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With respect to some of the specific proposals under consideration for the QPP, the ACPM wrote:
- Survivor benefits: The ACPM supports the proposals on survivor benefits, as they’re more in line with the CPP and reflect the changes in female participation in the labour market.
- Disability benefits: The ACPM has no position on the proposals about disability benefits but it noted they do seem to simplify administration and eliminate some current inconsistencies.
- Full funding of improvements: The ACPM supports the principle of full funding for future improvements. However, it noted the need to define full funding, as a number of variations and designs are conceivable.
- Stabilizing contribution rates: The ACPM supports the principle of an automatic adjustment whenever there’s a cost increase, although it noted the federal government has approved such a mechanism that shares the financial responsibility between contributors and pensioners.
- Indexing based on Quebec inflation: The ACPM says there are few advantages of using a different indexation rate, noting it prefers keeping the rate harmonized with the CPP.
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The ACPM’s recommendations also include:
- Gradually raising the age to which Canadians can defer the start of the pension to 75 from 70.
- Further improving the legislative framework for employer-sponsored plans. In its letter, the ACPM highlighted the recent move to abolish solvency funding but also noted it would like the government to amend the Supplemental Pension Plans Act to allow for other types of plans, particularly target-benefit arrangements.
Read: Ontario’s pension solvency framework should mirror Quebec’s new regime: ACPM
Read: Federal target-benefit conversions face an uphill battle