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QPP contributions will increase while workers who retire before age 65 will have their QPP benefits further reduced
Quebec City (18 March 2011) – The Quebec budget tabled by Finance Minister Raymond Bachand on Thursday afternoon provides incentives to keep workers working past age 65 and further penalizes workers who take their Quebec Pension Plan (QPP) pension benefits before age 65.
To encourage workers aged 65 or over to remain in, or return to, the labour market, a tax credit will be available starting in fiscal year 2012 which will be implemented gradually until it reaches its full value in 2016. The credit will be 15% of work income. The annual maximum income eligible for the credit will be start at $3,000 in 2012, $4,000 in 2013, $5,000 in 2014, $8,000 in 2015 and $10,000 thereafter. In the end, the 15% credit will apply on the portion of annual employment income between $5,000 and $15,000.
Employees who believe they are eligible for the credit can ask the employer to take that fact into account when calculating Québec withholding tax.
The Quebec Pension Plan, which mirrors the Canada Pension Plan (CPP) but is administered by Quebec, will also undergo major changes.
Following similar reforms to CPP introduced by the Haprer government in 2009, Quebec workers will now be increasingly rewarded for each year they wait to apply for QPP after they turn 65 and will be increasingly penalized if they take their QPP pension before they turn 65.
The budget provides that the monthly increase for a QPP pension sought after age 65 will increase from 0.5% to 0.7% as of January 1, 2013, and that the reduction applicable to a pension received before age 65 will increase from 0.5% to 0.6% for a maximum pension. This adjustment will be introduced over a period of three years from January 1, 2014, and the increase will be proportional to the amount of the pension in order to limit the impact on workers with lower incomes.
Contributions to the Quebec Pension Plan will also increase by 0.15 per cent per year over six years starting January 1, 2012. For a Quebecer who makes $40,000 a year, the increase will amount to $165 a year at the end of the six-year period.
The budget also contained an announcement that the government plans on moving ahead with a voluntary retirement savings plan (VRSP), which is based on the pooled registered pension plan (PRPP) framework announce by federal Finance Minister Jim Flaherty in December 2011.
The VRSP will be managed by financial institutions but offered by businesses that do not currently have private plans. Businesseses would be forced to offer the program to workers, more than half of whom in Quebec are not covered by private pensions, but employees would not be required to join.
It is expected that Flahety will introduce a national pooled registered pension plan to the rest of the country as early as next week's federal budget.
The labour movement has been critical of the PRPP propsal. A recent research paper by the Canadian Labour Congress analyzing the PRPP proposal concluded that as a mechanism for addressing the deficiencies in Canada’s retirement income system, PRPPs are greatly inferior to an expanded CPP.
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More information:
PRPPs fail to match the clear benefits of CPP: CLC analysis