The Montreal Economic Institute is urging the provincial government to emulate Chile’s experience in pension reform instead of raising contributions to the Quebec Pension Plan (QPP).
“The best way to guarantee the future of young Quebecers’ retirement savings while ensuring benefits for current retirees, as Chile has done, would be to give workers currently in the labour force the freedom to invest for their old age in their own retirement savings accounts rather than requiring them to rely on the Caisse de dépôt et placement du Québec,” says Éric Duhaime, a consultant in democratic development.
Duhaime explains that the QPP’s financial position has become increasingly precarious due to higher life expectancies, a low birth rate and slower-than-expected wage growth, resulting in contribution levels that have risen from 3.6% of eligible work income between 1966 and 1986 to 9.9% since 2003.
He believes that at the current rate, the QPP reserve will start falling in 2023 and will be completely empty in 2037, a trend that was accelerated by the heavy losses registered by the Caisse in 2008.
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Duhaime contrasts Quebec’s situation to the 1980s in Chile, when the public pension system was replaced with a system of individual capitalization and retirement savings accounts, with each worker having his own account under private sector management.
“Private mutual fund administrators are authorized to manage these retirement savings accounts within the framework of strict rules set by the government,” says Duhaime. “Workers choose freely among approved funds and administrators based on their risk tolerance, age, financial security, family, etc. Today, 95% of Chilean workers are covered by the new system. In the first 26 years after it took effect, savers’ annual return, with inflation taken into account, averaged 10.3%.”
Read the complete Economic Note here.
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