Québec Pension Plan

The Québec Pension Plan (QPP) replaces the Canada Pension Plan (CPP) in the Province of Quebec. Like the CPP, the QPP provides contributors and their families with retirement, disability, survivor, death and children’s benefits. It is an example of a defined benefit pension plan. The QPP is administered by Retraite Québec, formerly the Régie des rentes du Québec. Assets of the QPP are managed by the Caisse de dépôt et placement du Québec.

Contributions
Contributions to the QPP are compulsory for workers over the age of 18 whose annual employment income is greater than $3500, the basic exemption. Contributions are made by workers and employers up to yearly maximum pensionable earnings (YMPE) of $54 900 in 2016. In 2016, the contributions are 10.65% of salary between the basic exemption and the YMPE. The contribution rate will be 10.80% in 2017. The employee and the employer each pay half. Self-employed workers pay the full contribution. Historical pensionable earnings and contributions are available from Retraite Québec.

General information
The plan aims to replace 25% of the earnings on which the worker contributed, assuming retirement at age 65. To get the maximum QPP pension, a worker must have earned the YMPE or more for 40 years between age 18 and age 65, so most people do not get the maximum pension. In 2015 for example, the average monthly pension was $490, whereas the maximum was $1065 for retirement at age 65. Get your Statement of Participation online to see an estimate of your projected monthly pension amount. The pension is taxable and fully indexed for the cost of living each January.

Applying for benefits
Workers must apply to receive their pension, online or by regular mail. Workers who have contributed to both the CPP and the QPP must apply for the QPP if they live in Quebec or for the CPP if they live elsewhere in Canada.

Pension sharing between spouses
QPP allows retirement pension sharing between spouses. Depending on the length of the union, each spouse could now receive the same amount, i.e. half the previous total for the couple. This generally reduces total income tax owning for the couple. A separate application form must be filled and returned by mail.

When to claim it
The "normal" age to claim your QPP pension is 65, although more than half of eligible contributors start collecting at 60, the earliest possible age. Retirement earlier or later than 65 will decrease or increase the monthly pension, respectively. Benefits do not increase beyond age 70 so there is no reason to wait later before claiming QPP. A table showing the maximum monthly pension amounts, as a function of retirement age, is available from Retraite Québec.

Claiming QPP early
If you need the income, or if your life expectancy is low, you may be a candidate for taking government pensions as early as possible. Early retirees are also possible candidates because this reduces the number of "zero work income" years in their record. But each situation is different and you are encouraged to simulate different scenarios using the information below.

Delaying QPP
Only 2% of QPP contributors wait after age 65 to claim their pension. Yet delaying the start of your CPP/QPP pension, and perhaps Old Age Security (OAS), has the effect of significantly increasing the yearly benefits payable. These benefits are indexed to the cost of living and are guaranteed to last until death. Therefore, by drawing down other sources of income sooner, to make up for the shortfall created by the delay in CPP/QPP and/or OAS, the retiree is making a choice equivalent to the purchase of an indexed life annuity. This decreases longevity risk, and may allow the retiree to enjoy a greater total income in early years. Note that although the QPP advertises a 42% increase in your pension at age 70, if you already have a number of low or zero income years in your record before the age of 65, your pension will increase by less than 42% because your are adding zero earning years to your record after the age of 65. Good candidates for this strategy will have no bequest motives, no cash-flow issues, and will be in above-average health.

DIY pension calculations
Your Statement of Participation includes an estimation of your monthly QPP pension, using today’s dollars, under four scenarios:
 * 1) Stop working now and claim QPP at age 60
 * 2) Stop working now but claim QPP at 65
 * 3) Continue to work until 60 and then claim QPP immediately
 * 4) Continue to work until 65 and then claim QPP immediately

These are useful starting points but you may wish to evaluate more scenarios, such as other retirement ages, or not claiming QPP immediately upon retirement. This can be done with a spreadsheet as explained below. If you can successfully arrive at the same monthly pension numbers than scenarios 1 and 2 above, your spreadsheet is probably correct and can be used to estimate your pension under any scenario.

First, obtain your Statement of Participation. Then, see Calculation of the retirement pension under the Québec Pension Plan for a detailed step-by-step explanation of the official method for calculating the QPP pension.

The principles are as follows:
 * The contributory period starts the month after you turn 18.
 * The contributory period ends the month before your QPP pension starts, the month during which you turn 70, or when you die.
 * You can exclude 15% of these months when your earnings were the lowest, so for example you keep the 479 best months out of 564 for retirement at 65 and the best 428.4 months out of 504 for retirement at 60.
 * You don’t need to know your employment details month by month, as will become clear when studying the example provided by Retraite Québec.
 * The calculation will produce a monthly pension corresponding to 25% of your average adjusted monthly earnings for the 85% best months. This is your monthly pension if you claim QPP at age 65.
 * The amount must be adjusted down by 0.5%-0.6% per month if you claim QPP before 65, and adjusted up by 0.7% per month if you claim QPP after 65.
 * Starting in 2016, the formula for the exact monthly penalty for retirement before age 65 is: 0.5% + 0.1% * (monthly_pension_before_penalty / maximum_monthly_pension)

Other provisions
Although not mentioned in the step-by-step explanation from Retraite Québec linked above, there are also drop-out provisions for child rearing, receiving disability pensions, and receiving unreduced replacement indemnities from the Commission des normes, de l’équité, de la santé et de la sécurité du travail (CNESST). These provisions must be applied before the general drop-out of 15%. The child-rearing provision reads as follows: "any months for which you received family benefits paid by the Québec government or the Canadian government for a child under 7 or the months for which you were eligible for such benefits but none were payable".

Other QPP benefits

 * Disability pension
 * Pension for a disabled person's child
 * Death benefit
 * Surviving spouse's pension
 * Ophan's pension

Financial situation of the Plan
By design, the QPP is only partly funded. This means that outflows are paid mostly from new contributions, but there is also a reserve, the QPP fund. If new contributions exceed outflows like is currently the case, the extra cash is added to the reserve. When, in the future, outflows will exceed new contributions due to population aging, the shortfall will be covered by investment income from the reserve. The steady-state or equilibrium QPP contribution rate is such that the ratio of the reserve to annual outflows remains constant on a long-term basis.

As of 31 December 2015, the QPP Fund assets were $57 billion dollars. The latest actuarial valuation, as of 31 December 2015, shows that over the next 50 years, new contributions plus investment income will exceed the costs of the regime, and that the steady-state contribution rate is 10.87%, compared with the 10.80% rate that will apply from 2017. The projections are based on real (after-inflation) investment returns ranging from 3.5 to 4.7% per year over the next 50 years.

QPP has a higher contribution rate than CPP because of unfavorable demographics and lower salaries in Québec relative to the rest of Canada.