Excerpts below from a new Mercer Communiqué discuss pension-related changes in the recently released 2011/12 Quebec budget. For the first time, the contribution levels to QPP will exceed contributions of Canadians in the rest of the country to CPP.
Quebec Pension Plan
The contribution rate will gradually be increased from 9.9% to 10.8% over a six-year period.
|Employee rate||Employer rate||Total|
|January 1, 2011||4.950%||4.950%||9.90%|
|January 1, 2012||5.025%||5.025%||10.05%|
|January 1, 2013||5.100%||5.100%||10.20%|
|January 1, 2014||5.175%||5.175%||10.35%|
|January 1, 2015||5.250%||5.250%||10.50%|
|January 1, 2016||5.325%||5.325%||10.65%|
|January 1, 2017||5.400%||5.400%||10.80%|
Also, an automatic contribution rate adjustment mechanism will take effect beginning in 2018. This means that if the steady-state contribution rate determined in a new actuarial valuation exceeds the actual contribution rate by at least 0.1%, the contribution rate will automatically be increased by 0.1% per year as of the following January 1, until the steady-state contribution rate is attained or until the next actuarial valuation.
As of January 1, 2013, the monthly increase factor affecting a QPP pension that is applied for after age 65 will increase from 0.5% to 0.7%. Furthermore, starting January 1, 2014, the monthly reduction factor affecting a QPP pension that is applied for before age 65 will be raised from 0.5% to 0.6% over a three-year period. The increase will be proportional to the amount of the pension.
From January 1, 2016, the monthly adjustment factors will be similar to the factors applicable under the Canada Pension Plan (CPP) for members entitled to the maximum pension amount. The reduction will be lower under the QPP than under the CPP for a low-income worker.
Voluntary Retirement Savings Plans
The budget announces a new retirement savings tool, the VRSP, to help Québec workers, who are not covered by an employer-sponsored pension plan or are self-employed, to save for retirement, while allowing them to benefit from economies of scale with respect to management expenses.
VRSPs will be managed collectively by financial institutions. An oversight mechanism will be put in place regarding the level of management expenses, investment policies offered, and minimum information that must be provided for members. In addition, employers that satisfy certain criteria, which remain to be determined, will be required to offer the plan but will not be obliged to contribute. Employees who are not members of an employer-sponsored pension plan will automatically be registered, but will be allowed to opt out. The budget documents do not specify whether a group registered retirement savings plan (RRSP) constitutes an employer-sponsored pension plan. However, if the employer contributes to the VRSP, it will be possible to render the plan mandatory, provided an agreement is reached with the employees.
Employers will have to make source deductions for the contributions of employees who wish to participate in the plan. Also, employer contributions will be exempt from payroll taxes. Furthermore, employee contributions will be tax-deductible and amounts accumulated in the plan will not be taxed as long as they are not withdrawn. While not specified in the budget documents, the federal-provincial agreement of December 20, 2010, stipulates that the contributions will be subject to the tax limits that apply to registered pension plans and registered retirement savings plans.
Amendments to tax legislation will be needed to implement these new plans and the Québec government hopes that the federal government will announce the changes necessary for the implementation of VRSPs in its March 22, 2011, budget. READ MORE