There's a big "baby boomerang" on the way!
The aging of the Québec population
What do we mean by "the aging of the population"? It refers to the increase in the average age of the population in a given area. This phenomenon is due to a decrease in the birth rate or an increase in life expectancy, and sometimes a combination of both factors.
After the Second World War, the birth rate rose in many Western countries. In Québec, this famous "baby boom" was followed by a significant drop in the number of births. In a few years, nearly 25% of Québec's population will be over the age of 65.
Economic and social consequences
The aging of the population will have an impact on government spending. The drop in the number of children should result in less spending on education for children and more spending on adult education.
- Work and retirement
Within a few years, companies could be faced with labour recruitment problems. Instead of retiring at 55 or 60 years of age, workers will probably be encouraged to work longer. Modifications to retirement plans are to be expected. Work incentives will be required because employees, who will be less numerous, will have power to negociate.
There are two major consequences to increased life expectancy: retirement lasts longer, and people spend more of their lives with physical impairments, which entail added expenses.
Over the years... Income security in retirement in Québec
- Before 1925: Religious communities and families take care of the elderly
There were no formal income security measures in place with regard to retirement. Most men over 65 worked. The Québec Public Charges Act provided financial assistance to organizations that cared for the sick and the elderly. Only a few large companies offered retirement plans to their employees.
- Between 1925 and 1950: The first financial support measures for retirement appear
The Québec Old Age Pensions Act came into effect in 1936. During the Second World War, private retirement plans developed as manufacturing industries grew, unionism was on the rise, and price and salary controls were introduced.
- During the 1950s: Old age pensions and RRSPs make their debut
The 1950s saw the arrival of the federal universal old age pension plan and its provincial equivalents, which covered all persons aged 65 or over. The first registered retirement savings plans (RRSPs) also appeared.
- During the 1960s: The Canada Pension Plan (CPP) and Québec Pension Plan (QPP) are born
The QPP got a boost from Caisse de dépôt et placement du Québec, which was set up to manage the pension plan's assets. The same era saw the first legislation governing employer-sponsored private pension plans.
Retirement and quality of life: What does the future have in store?
With vast numbers of new retirees straining the system, authorities have had to find ways to adjust the funding of assistance programs. In the United States, the retirement age is gradually increasing from age 65 to age 67. The transition began in 2003 and will end in 2025. In Québec, changes to the QPP were adopted in 2011, including an automatic mechanism to adjust the contribution rate, which will take effect as of 2018.
The QPP and Old Age Security (OAS) pensions are not enough to guarantee most workers a reasonable retirement income. Low-income retirees may also be eligible for the Guaranteed Income Supplement (GIS), which provides a minimum income.
However, the 3 systems combined (QPP, OAS, and GIS) do not allow middle-income workers to maintain their standard of living in retirement.
- Retirement, health, and disability
In some cases, a worker may be deemed disabled based on administrative rules set out by the employer or other organizations such as Retraite Québec.
However, since there is no code or law to declare a retiree disabled, no financial support is available from any particular program. Disability benefits are often converted into retirement benefits, and even though the disability is no longer the reason the beneficiary is not working, it can still have a real impact on standard of living.
If health problems prevent someone from working, they can also affect a retiree's quality of life and personal finances. Technological advances have allowed some people to maintain an active social life, but the high cost of these technologies must be taken into consideration.
With the increase in life expectancy, people live with their disabilities longer. In this regard, the government has taken a number of initiatives to help with health-related expenses, such as prescription drug insurance and the Health Services Fund.
- Retirement, free time as a couple...
The switch to retirement living is not always easy! During this "mandatory" rite of passage, many people lose their network of friends and suddenly have over 40 more hours of free time a week. Spending all day, every day with your spouse may also require a period of adjustment.
- Retirement and expenses...
Retirement often brings with it a certain number of expenses: club memberships, travel, etc. The list is long, but dwindles fast when funds run low! For retirees with disabilities, the list becomes even shorter due to the additional expenses their condition entails.
- Poverty: a disturbing reality
Single-parent families and the elderly are more often affected by poverty. The introduction of Old Age Security and the Québec Pension Plan, combined with retirement savings awareness campaigns, have increased the financial independence of the elderly.
The fiscal reform of 1990 had a major impact on saving for retirement. Between 1981 and 2000, the sources of income in retirement changed substantially. In 1981, private pension plans represented 12% of retirement income, and QPP 11%. In 2008, private pension plans accounted for 29% of retirement income, and QPP 19%. As a result of these plans, fewer people have to rely on programs focused on fighting poverty, such as the GIS and the Allowance, and they no longer have to work after age 65 to maintain reasonable incomes.
- Men better protected than women
People over age 75 are the most likely to receive GIS benefits. Women in that age group are the most vulnerable; nearly 60% receive the GIS, whereas only 46% of men receive it. For divorced or widowed women, that figure increases to nearly 70%.
The percentage of people age 65 or over who receive a retirement pension under the QPP increased from 48% in 1985 to 92% in 2008. It will continue to increase as women who have contributed to the Plan reach age 65. In that age group, 97% of men and 87% of women receive a retirement pension under the Plan.
In 2008, almost 59% of the population received benefits from a private pension plan. However, men are clearly better protected that women (67% coverage for men versus 51% for women). Average benefits have also increased, both for men and women.
Take action now for a retirement you can be proud of!
- Save early and regularly
The higher your income, the more money you will need to save in order to maintain your standard of living in retirement. If you earn approximately $40,000 a year, Old Age Security and the Québec Pension Plan will only replace about 40% of your income if you retire after age 65. To maintain your standard of living, you'll need to finance the rest yourself. So start saving for retirement as early as possible.
- Set your priorities and seek professional advice
Retirement is not something you can plan at the last minute! Analyze your expenses, income, etc. today. A number of options are available. You may choose to pay off your mortgage or high-interest loans, such as credit cards. Do not hesitate to seek professional advice from a financial planner to better plan your expenses and assess your needs in retirement!