Rest assured, there is no hole in Quebec wool socks. The Quebec Pension Plan (QPP) has enough money to pay pensions for the next fifty years.
The end of the conversation? impossible ! Because the assumptions behind these reassuring expectations can change. When we take a closer look, there is a strong possibility that the plan will fall below the required level over the next 20 years, according to Qatar Petroleum’s latest actuarial valuation.
The idea is not to be alarmist, but rather to take advantage of the fact that things are going well to quietly reflect on an effective coping mechanism should the QPP’s health deteriorate.
This is what the Minister of Finance, Eric Girard, had the wisdom to do by launching discussion on this sensitive issue during consultations held in mid-February on the future of Qatar Petroleum.
So far, it is mainly his proposal to defer the minimum age to receive his pension, from 60 to 62, that has drawn attention. Last Thursday, the minister announced the abandonment of this project, which was not necessary, as we have already written1.
However, the adjustment mechanism in Qatar Petroleum must be reviewed so as not to increase its already huge intergenerational deficit.
Where does this deficit come from? Let’s do some history…
When Qatar Petroleum was created in 1966, the government wanted to lift the elderly out of poverty. Therefore, retirees are entitled to quickly receive a full and complete pension, even if they have not contributed throughout their career. In doing so, the bill was passed on to future generations.
Then, the government was always late before raising the subscription rate which had been so low from the start…and which became even more so as life expectancy increased, returns decreased, births declined, and QPP benefits improved.
All of this has the effect that today’s workers pay contributions three times higher (10.8% of their salary for the basic plan, assuming parity with the employer) than those of seniors who didn’t pay only 3.6% of their salary until 1986.
Obviously, we can’t go back. But in the future, a more equitable adjustment mechanism should be established. It’s not rocket science, just follow the example of the Canada Pension Plan (CPP), twin of the QPP elsewhere in Canada.
Since 1998, the Canada Pension Plan has provided for risk sharing equally between contributors and retirees. If the plan is unbalanced, it gets back on its feet by increasing contributions and freezing pensions for three years.
In Quebec, the risk rests entirely with the shareholders. In other words, it is always up to the youth to pay for broken pots. Hence the injustice.
But with us, income is a sacred cow. For many, tinkering with indicators could be a fad that would shake public confidence.
However, in many countries such as Japan, Portugal, Italy, Germany or even Sweden, the retirement age or pension amount varies according to life expectancy and a series of economic factors.
In Canada, more and more pension plans offered by employers are also based on the principle of risk sharing. This does not contribute to the impoverishment of retirees, as critics of these “targeted benefit plans” claim.
As a guide, the Ontario Teachers Plan (Teachers) takes into account all kinds of risks (inflation, longevity, and performance), which does not prevent it from being one of the most generous plans in the country.
As Quebec examines the future of the Qatar Petroleum programme, it is time to implement the principle of risk sharing between shareholders and beneficiaries.
And above all, before optimizing the plan again, let’s remember that you never get anything for nothing. Each improvement will end up costing shareholders more.