Canadian Payroll Reporter

2 News to one-third. The higher benefits will accumulate gradually as in- dividuals pay into the enhanced CPP. This means that young workers just entering the work- force will see the largest increase in benefits. To pay for the benefit im- provements, the CPP contribu- tion rate will gradually rise be- tween 2019 and 2023 from 4.95 per cent to 5.95 per cent for earn- ings up to the yearly maximum pensionable earnings (YMPE). The rate increase will apply to both employers and employees. In addition, beginning in 2024, the government will implement a separate contribution rate of four per cent for pensionable earnings between the YMPE and a new upper earnings limit. In 2024, the new upper earnings limit will be 107 per cent of the YMPE. In 2025, it will rise to 114 per cent (or approximately $82,700). Last year, Leitão said Que- bec did not sign the agreement because he was concerned that it would not do enough to help low-income earners and that the contribution rate increases could hurt Quebec's economy. Leitão also said any QPP changes must address Quebec- specific issues affecting the plan's long-term sustainability. For instance, he said the prov- ince's population is aging more quickly than in other parts of the country, putting more pressure on the QPP. In addition, raising contribution rates in Quebec is more challenging because the QPP rate is already higher than the CPP rate. "The objective of the consul- tation is clear: establish a plan contribution rate compatible with the workers' and employ- ers' ability to pay, and fund the plan to ensure its sustainability, which is inseparable from the se- curity that the system must pro- vide," Leitão said in releasing the discussion paper. The Quebec government's QPP proposal, like the CPP en- hancement, would increase the income replacement level for the plan from 25 per cent to 33 per cent and gradually raise con- tribution rates over seven years, beginning in 2019; however, the changes would only apply to those whose YMPE exceeded $27,450. The Quebec proposal also calls for the federal government to implement an additional in- come exemption for calculating benefits under the Guaranteed Income Supplement. Leitão said this change could help low-in- come seniors today. Since the Quebec enhance- ment proposal would only apply to pensionable earnings above $27,450, the discussion paper states that overall QPP retire- ment benefits would be lower than they would be under the en- hanced CPP, but Quebec work- ers would benefit from having to pay less in QPP contributions over their working life. Limiting the rate increases for benefit improvements to earn- ings over $27,450 would also be better for employers in province, the paper adds. "Payroll deduc- tions by Québec employers are already the highest in Canada," it says. According to Quebec Finance Ministry data, when comparing the QPP's and CPP's "effective contribution rate" for a worker whose earnings are equal to the YMPE, the rate for Quebec em- ployers is 15.13 per cent, com- pared with an average of 9.67 per cent in the rest of Canada. The "effective" rate is the actual con- tribution in percentage of salary, given the current annual basic exemption of $3,500. If the government imple- mented the Quebec proposal, the paper says the rate would rise to 15.63 per cent, compared to 16.07 per cent if it went with the CPP enhancement. While the paper acknowledges that em- ployer rates will rise with both options, it says, "(t)he CPP sce- nario would result in a greater increase to payroll deductions." In addition to the enhance- ment proposals, the discussion paper asks for feedback on pos- sible measures to ensure that the QPP remains sustainable and that contribution rates are stable. While the paper says the plan's finances are healthy, it adds that, "it is still faced with many demo- graphic and economic challenges that could affect its future." These include a longer life expectancy and changing retire- ment patterns. Discussion paper documents show that life expec- tancy at birth in Quebec was 82 years in 2013, up from 71 years in the mid-1960s. This means that retirement pensions are being paid for a longer time. In addition, the discussion paper says on average, people in Quebec retire at an earlier age (62 years) than those in the rest of Canada (63 years). While some older workers in the prov- ince choose early retirement, others over 60 opt to continue to work while receiving a QPP re- tirement pension. Another factor is a decline in the population aged 20 to 64 in relation to the number of people 65 and up. Discussion paper doc- uments note that in 1966, there were 8.2 people aged 20 to 64 for each person 65 and older. By 2015, there were only 3.5, com- pared to 4.0 in the rest of Canada. By 2030, the documents estimate that there will be two people aged 20 to 64 for every person 65 and older in Quebec, compared to a ratio of 2.6 elsewhere in Canada. "Because the population of Quebec is aging more markedly, the proportion of retirement pension beneficiaries is greater in the case of the QPP than in that of the CPP," the paper says. Another factor affecting the province is that average weekly pay in Quebec is lower than it is in the rest of the country. In 2015, the paper says average weekly pay in Quebec was 9.6 per cent lower than the Canadian average. "This means that the average income on which contributions are made is lower in Québec, and this has repercussions on the re- serves that these two plans build. For benefits to be comparable, the QPP contribution rate has to be higher than that of the CPP," it states. The two rates were the same until 2012 when the provincial government began implement- ing annual rate increases to deal with the plan's financial pres- sures. For 2017, the QPP rate is 5.4 per cent, compared with 4.95 per cent for the CPP. Beginning in 2018, an auto- matic adjustment mechanism will increase the QPP contri- bution rate by 0.1 per cent per year if needed to keep the plan in balance. The discussion paper propos- es a number of options to ensure that the QPP remains sustain- able and that contribution rates will be stable going forward. They include: • Increase the minimum age to become eligible for an early QPP retirement pen- sion. It is currently 60 years old. While the paper does not recommend a specific age, it states that an increase in the eligibility age would encour- age older workers to remain in the labour market longer. This would not only decrease pressure on QPP retirement pensions, it would also lead to more people 60 and over pay- ing QPP contributions, help- ing to keep contribution rates stable. • Full funding of QPP benefit improvements. Any improve- ments in benefits would be paid for as much as possible by those who will benefit from them rather than by another generation. • Introduce a longevity factor that would reduce new pen- sions based on increases in life expectancy beyond a selected threshold. Once the government reviews the feedback it received during the consultations, it is expected to announce how it will proceed with any QPP changes. It is pos- sible that the government could put forward its plan when Leitão tables this year's provincial bud- get, expected in the spring. To read the entire discussion paper and related background documents, go to Retraite Quebec's website at www.re- traitequebec.gouv.qc.ca/en/ consultation-publique/Pages/ consultation-publique-rrq. aspx/. Canadian HR Reporter, a Thomson Reuters business 2017 February 2017 | CPR Fast-aging population putting pressure on QPP from QUEBEC on page 1 The QPP is faced with many demographic and economic challenges that could affect its future.

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