Creation of voluntary retirement savings plans
Increasing contributions to Quebec Pension Plan
Automatic contribution rate adjustment mechanism
Changes to adjustments to Quebec Pension Plan for early and late retirement
Going forward


On March 17 2011the Quebec government tabled its 2011-2012 Budget. Alongside the budget, the government also released a paper entitled "A Stronger Retirement Income System: Meeting the Expectations of Quebecers of Every Generation". The paper highlights a number of challenges to maintaining the retirement income of Quebec residents.

The recent recession, as well as changes to the population demographics, is placing increasing pressure on the financial health of the Quebec Pension Plan. The projected increase in the number of retirees, the decline of the working-age population and longer life expectancies are creating increasing demands on pension plan benefit payments, while decreasing contributions.

To ensure the long-term stability of the pension plan and to combat the problem of insufficient retirement savings, the 2011-2012 Budget and accompanying paper propose the following measures:

  • the creation of voluntary retirement savings plans (VRSPs);
  • an increase in contributions to the Quebec Pension Plan;
  • the implementation of an automatic contribution rate adjustment mechanism for the pension plan; and
  • a change to the adjustments applied to early or late retirement under the pension plan.

Creation of voluntary retirement savings plans

The federal and provincial finance ministers agreed to a framework for the introduction of a new vehicle called a pooled registered pension plan (PRPP). PRPPs are intended to provide access to pension plans to a wider cross-section of the population, such as self-employed workers and small business employees.

A PRPP will be similar to a defined contribution pension plan, but administered by financial institutions on a large-scale pooled basis. This will enable smaller employers and the self-employed to participate in a pension plan without having to deal with the administrative and regulatory complexities of registering a standalone pension plan (for further details on PRPPs please see "Pension reform in Canada: a national report card" and "Federal government consults on pooled registered pension plans").

The Quebec government is moving forward with the proposed PRPP framework through the announced creation of VRSPs. Such plans are intended to be accessible to everyone over the age of 18 and will rely on economies of scale to reduce management expenses. Financial institutions acting as VRSP providers and administrators will offer default investment options and contribution rates to cultivate a critical mass of assets. This also simplifies the process for participants and minimises administrative and management duties for employers. Participants may adapt the default provisions of the VRSP to their needs.

The VRSP will encourage retirement savings, given that employers that do not offer a pension plan will be required to enrol their employees in VRSPs. Although employers will not be required to contribute to VRSPs, employers will be required to deduct at source employee contributions to VRSPs. Employees may then opt out of a VRSP, but it remains the default option. Furthermore, employers that contribute to the VRSP may require their employees to participate in a VRSP, provided that an agreement is reached with the employees. Employer contributions will be exempt from payroll taxes.

The 2011-2012 Budget specified that VRSPs will be accessible to the self-employed and to 'savers' (a term undefined by the budget). However, the budget remained silent as to how the self-employed and savers would participate in a VRSP. A number of issues need to be resolved before the implementation of any PRPP or VRSP. These include:

  • the eligibility requirements to act as an administrator;
  • the duties (including possible fiduciary duties) of administrators and employers;
  • regulatory oversight;
  • choice of investments; and
  • harmonisation rules across provinces.

The federal government's budget, released March 22 2011, affirms its commitment to implementing PRPPs. However, the federal budget did not release any further details or announce the necessary amendments to federal legislation to implement PRPPs such as VRSPs. For example, the federal Income Tax Act and the federal Pension Benefits Standards Act will require amendments, as will the Quebec Taxation Act and the Quebec Supplemental Pension Plans Act, in order to implement the VRSP in Quebec.

Increasing contributions to Quebec Pension Plan

The projected demographics of the Quebec population indicate that the current contribution rate to the Quebec Pension Plan will be much lower than the rate needed to secure the long-term financial stability of the plan (the steady-state contribution rate). An actuarial report dated December 31 2009 has determined that the steady-state employer-employee contribution rate is 11.02%, while the current contribution rate is only 9.9%.

Accordingly, the Quebec government is phasing in increases to the contribution rate over six years. The increases will be made in increments of 0.15 percentage point per year until the contribution rate reaches 10.8%. The increases will take effect on January 1 of each year from January 1 2012 until January 1 2017. The steady-state contribution rate will be reassessed every three years to determine whether the increases remain necessary or whether further action is required.

The proposed contribution rate increases will create a disparity between the contribution rates under the Canada Pension Plan and the Quebec Pension Plan. It remains to be seen how the federal and Quebec governments will address the disparity.

Automatic contribution rate adjustment mechanism

Following the contribution adjustments planned for the next six years, an automatic contribution rate adjustment will occur following publication of the tri-annual steady-state contribution rate assessment. Should the assessment reveal that the contribution rate is below the steady-state contribution rate by more than 0.1 percentage point, the contribution rate will be increased automatically by 0.1 percentage point per year. The increases will continue until the contribution rate matches the steady-state contribution rate. All increases will be in effect as of the following January 1 and are subject to suspension by the government to address the issue with alternate measures.

Changes to adjustments to Quebec Pension Plan for early and late retirement

Quebec residents can choose to begin receiving Quebec Pension Plan benefits at the age of 60 or opt to wait until the age of 70. Benefits are increased or decreased on an actuarial basis for each month between the 65th birthday and the age of the pensioner at first benefit payment. At present, Quebec Pension Plan pensions are adjusted as follows:

  • Benefits are raised by 0.5% per month when applied for after the of age 65; and
  • Benefits are reduced by 0.5% per month when applied for before the age of 65.

For pensions applied for after the age of 65, the monthly increase will rise from 0.5% to 0.7% as of January 1 2013. In addition, for pensions applied for before the age of 65, the monthly reduction of pension benefits can increase from 0.5% to up to 0.6%.

These adjustments will be phased in over three years beginning January 1 2014. The changes to the percentage adjustments are the same as those being made to the Canada Pension Plan.

Going forward

The minister of finance is expected to table an omnibus bill in the National Assembly to implement the changes to the Quebec Pension Plan announced in the 2011-2012 Budget. Further proposals to adjust the Quebec Pension Plan are expected in the near future. The minister of employment and social solidarity is likely to announce increases to the orphan pension amount and the elimination of the requirement for workers to stop working in order to be eligible for the Quebec Pension Plan at the age of 60.

For further information on this topic please contact Robert Dupont at Heenan Blaikie LLP by telephone (+1 514 846 1212), fax (+1 514 846 3427) or email ([email protected]).