Public retirement plans: a guaranteed basic income

Public retirement plans, from the federal and Québec governments, guarantee a base minimum income at retirement.

The federal government plan: basic financial assistance

Canada's Old Age Security Program provides seniors with a base income at retirement, whether they have ever worked or not. This program is administered by Service Canada on behalf of Human Resources and Skills Development Canada. It is not linked to a specific retirement fund and it is financed through general tax revenues. It includes:

• Old Age Security (OAS) Pension
  
  This is the basic pension of the federal program. It is not necessary to stop working in order to benefit from it. The amount is determined based on the number of years of Canadian residency. To be eligible, you must:
  • be at least 65 years of age and
    
    
  • have a legal Canadian status and
    
    
  • have resided in Canada for at least 10 years since the age of 18.

• Guaranteed Income Supplement (GIS)
  
  The Guaranteed Income Supplement is paid in addition to the OAS pension, to seniors with low or no income. The amount is determined each year based on income and marital status. To be eligible, you must:
  • receive an OAS pension and
  • have an annual income that does not exceed a pre-determined threshold, which is based on whether you have a spouse or not.

• Allowance and Allowance for the survivor
  
  These allowances help low income spouses, aged 60 to 64, until they become eligible for the OAS pension at 65 years of age. The Allowance applies for those whose spouse receives or is entitled to receive the OAS pension and the GIS, while the Allowance for the survivor applies for widowed seniors. The amount is determined each year based on income and marital status. To be eligible, you must:
  • be 60 to 64 years of age and
  • have a legal Canadian status and
  • have resided in Canada for at least 10 years since the age of 18 and
  • have an annual income that does not exceed a pre-determined threshold, which is based on whether you have a spouse or not.

To receive a benefit from the Old Age Security (OAS) program, you must make a written application 6 months prior to the date you want to receive it.

For more information, visit: www.servicecanada.gc.ca under the section entitled "Seniors".

The Québec Pension Plan (QPP): insurance for workers

The Québec Pension Plan is a compulsory public insurance plan. Its purpose is to provide Québec workers with basic financial protection in the event of retirement, death or disability. This program is administered by the Régie des rentes du Québec.

The QPP is financed by contributions from Québec workers and employers. You contribute automatically if you are 18 years old or older, if you are working, and if your annual employment income is greater than $3,500.

In 2012, the contributions paid to the QPP correspond to 10.05% of your annual employment income between $3,500 and the maximum eligible earnings ($50,100 in 2012). If you are a salaried worker, you pay half and your employer pays the other half. If you are self-employed, you pay the entire amount. In 2012, the maximum contribution is $4,683.20.

The contribution rate for the Québec Pension Plan will increase to 10.20% on January 1, 2013. It will then increase by 0.15% a year, reaching 10,80% in 2017. As of 2018, an automatic mechanism will be implemented to align the contribution rate with the steady-state rate.

To receive the pension benefit

You must have contributed to the QPP, even if just for one year, and must be at least 60 years of age. Each year, your employment income (up to the maximum pensionable earnings) is recorded under your name in the QPP register. When the time comes, this income will be used for the calculation of your pension benefit and other benefits, if applicable.

Even if you have not contributed to the QPP, if earnings are credited to you as the result of divorce or separation, you could also receive pension benefits.

To know the amount of the employment income recorded under your name in the QPP, consult your Statement of Participation. The Régie des rentes du Québec automatically sends this statement to contributors every 4 years. You can also obtain a copy by contacting the Régie.

For more information on the Québec Pension Plan's pension benefit, consult: www.rrq.gouv.qc.ca/en under the section entitled "Retirement".

The Canada Pension Plan (CPP): if you worked elsewhere in Canada

The Canada Pension Plan is equivalent to the Québec Pension Plan and applies in the other provinces in Canada. This program is administered by Service Canada. If you have worked elsewhere in Canada, you have probably contributed to the CPP.

The CPP and the QPP work jointly to ensure a basic protection for all contributors. Your employment income recorded in both programs (CPP and QPP) will be used to determine your eligibility for the pension benefit and to calculate the amount.

Where do you apply for a pension?

If you have contributed to both programs, you must file an application based on where you live. If you live outside Canada, you must send it to the province you last lived in.

For more information on the Canada Pension Plan, consult: www.servicecanada.gc.ca under the section entitled "Seniors".

If you have worked outside Canada

Even if it was for a few months, you may be eligible for a retirement pension from the country where you worked. A benefit paid by another country does not reduce the amount of your benefits from the Québec Pension Plan or the Canada Pension Plan. However, some countries may reduce their benefit if you receive a benefit from the CPP or the QPP.

If Québec or Canada has established a social security agreement with this country, the Régie des rentes du Québec or Service Canada could assist you with the process. For more information on the subject, consult:

• www.rrq.gouv.qc.ca/en
• www.servicecanada.gc.ca

Worth knowing about...

• The Old Age Security (OAS) program provides you with a base income at retirement even if you have never worked.
• The Québec Pension Plan applies solely to Québec workers whose employment income is at least $3,500 annually.
• Workers' and employers' contributions are the main source of funding for the Québec Pension Plan. This funding method, called partial funding, is used to pay the benefits, maintain a base reserve in order to minimize economic fluctuations and important demographic changes (for example, an aging population), and to ensure the financial sustainability of the plan.
• A bill to that effect was passed by the National Assembly in December 2011. Changes to the Plan were also announced in the Québec budget speech in March 2011 in order to restore the Plan's financial situation and encourage workers age 60 and over to remain in the labour force.
  
  Following these changes, the Plan's contribution rate will increase by 0.15% a year until it reaches 10.80% in 2017. Furthermore, the steady-state contribution rate, established in the latest report¹ is 10.81%. The rate reflects the announced changes to Plan benefits, specifically the adjustment factors for early retirement applicable as of 2014. 
  
  Plan funding will therefore stabilize as of 2017. If it does not, the contribution rate will be adjusted automatical
• Unlike the Québec Pension Plan, there is no base reserve set aside for the OAS program. The Government of Canada finances the OAS program through its general tax revenues. It will thus be directly impacted by the aging population.