A new universal supplemental pension plan is one of the key proposals by a blue-ribbon panel to provide financial security for elderly retirees in Quebec.
A committee of experts examining the province’s underfunded retirement system recommended Wednesday that Quebec take the bold and innovative step of creating what it calls a “longevity pension” where, at age 75, retirees would receive an additional income.
As workers live longer and retire earlier, enormous pressure is being placed on existing private and public pension plans. Those managed by the Quebec Pension Plan alone are underfunded by $41-billion, the committee reported. The committee recommended that, to improve their solvency, the workers and employers need to restructure the plans over a five-year period.
The experts also called for the implementation of a voluntary retirement savings plan.
The Quebec government said it will hold public hearings and act quickly on some of the report’s recommendations.
“A bill [on a voluntary savings plan] was being prepared and will be tabled soon,” Premier Pauline Marois said in the National Assembly on Wednesday.
However, the government appeared less anxious to take a position on the committee’s longevity plan proposal. Ms. Marois invited the opposition parties to take part in a non-partisan debate next fall in seeking solutions to the serious financial problems facing the province’s retirement-income system.
In creating the longevity plan, the government should allow easier withdrawals from retirement savings, the committee recommended.
The committee confirmed that a growing number of workers were outliving their savings at a time when almost half of the four million workers in Quebec – or 47 per cent – have no group retirement plan. Their only source of income after retirement will be benefits from the Quebec Pension Plan and federal Old Age Security.
The longevity plan recommendation would be an additional way to require workers to contribute to another mandatory pension plan to ensure an adequate source of income in the latter years of their retirement.
“The status quo is not a solution,” said committee chairman Alban D’Amours, who was the former president and CEO of Desjardins Group. “The objective here is that everyone be given access to a reliable pension income.”
The proposed longevity plan would be fully funded by employer and employee contributions, and all workers – regardless of income – would be required to contribute. The plan’s cost was estimated to be the equivalent of 3.3 per cent of earnings shared equally between workers and employers up to a maximum contribution of $840 a year per employee.
Earnings at 75 years of age would be the equivalent of 0.5 per cent of earnings up to a maximum allowed by law. For instance, a young worker earning the maximum allowable income, $51,000, and who paid $840 a year into the plan, would receive $14,564 a year as a supplemental income at age 75.
The experts also concluded that while defined benefit plans provided the best protection at lower cost, several plans remained in serious financial difficulty. As many as 72 per cent of the plans had a degree of solvency of less than 80 per cent.
“Increasing life expectancy, early retirements, an aging population, the decrease in interest rates and financial market volatility have made the weaknesses blatantly obvious,” the report stated, adding that hopes of a market turnaround to correct the problem was an “illusion.”
The committee of experts recommended the government allow for more flexibility for negotiations between company management and employees to solve the financial problems facing the defined benefit plans. The objective the committee insisted on was to help workers plan their financial security in preparation for retirement.
“The longevity plan allows people to save more and it will cost a lot less than if we did nothing,” Mr. D’Amours said at a news conference. “Our entire pension system is coming under attack. If we do it [the longevity plan] today it is a savings plan. But if we do nothing, tomorrow it will become a tax.”
However, the business community expressed concerns that the new longevity plan amounted to a new tax on small and medium size companies. The Canadian Federation of Independent Business estimated the new plan could cost $5-billion a year – a heavy burden for many small companies and their employees to carry.