The pension system in Quebec is inefficient, says IRIS

A person without personal savings and without an employer plan should work until age 70 with an equivalent income $66,000 for a viable retirement free from poverty. This portrait bears witness to the inefficiency of the retirement system in Quebec, according to the Institute for Socioeconomic Research and Information (IRIS), which published a study revealing that 53% of single people aged 65 and over do not benefit from a pension. an adequate pension, while this figure stands at 18% for couples.

A harder-retirement

The research shows that a quarter of employees in the province have a quality pension plan and that less than 25% of people earning less than $70,000 annually were able to contribute to an RRSP in 2021. This inability to save, at the same time the rising cost of living, especially with regard to rents, means that people work longer to be able to meet their needs.

“While certain expenditure items decrease when leaving the labor market, it should be noted that the average price for housing in a residence varies on average between $23,000 and $40,000 per year, which greatly exceeds the $10,000 expected. for living income housing, says researcher for IRIS and author of the study, Eve-Lyne Couturier. That so many seniors find themselves in this situation speaks volumes about the quality of our retirement system in Quebec, where it is impossible to live out of poverty with only the basic public programs available.”

The researcher points out that the debt ratio of the elderly has also increased in recent years, de facto reducing their room for maneuver to help their families financially once they retire, in addition to encouraging them to work longer to absorb the debts.

“We are seeing an increase in real estate and mortgage debt in addition to an increase in the bankruptcy rate. This trend means that seniors have less excess financial capacity to help their children or family, in addition to having less time to give to the community because they have to work. It should be remembered that this age group of society is the one that puts in the most hours of volunteering, so we have to question the viability of a system where people have to work after work and if they are asking too much.”

Better pension plans

According to Eve-Lyne Couturier, solutions exist to improve the pension system in Quebec, in particular by relying on what is being done elsewhere. This is the case of Denmark, a country with employer-sponsored pension plans almost entirely imposed by the state and which should serve as a model for the province.

In Denmark, an employee who changes function or job within the same industry keeps his pension plan. More generally, Danish employers' contribution is compulsory, which in turn improves the income replacement rate. Everyone benefits from this obligation, especially people with low incomes where this rate can climb up to 125%. In Quebec, the employer contribution is not taxed and this rate is 53%, which partly explains why 20% of people between the ages of 65 and 69 were still working last year.

Eve-Lyne Couturier, researcher for IRIS and author of the study

In addition to making the contribution mandatory for Quebec employers, the study suggests changing the types of pension plans and reviewing the benefits to which a retired person has the right so that they are more adapted to the increase in the cost of living.

“We must review the inefficient plans offered by employers, such as the Voluntary Retirement Savings Plan (VRSP). By requiring employers to contribute, we could also change the types of plans and improve defined benefits at retirement so that they are indexed to inflation. For example, for every $100 contributed, a person would receive $10 once retired, in addition to indexation with inflation,” explains the researcher.

Other solutions are proposed, in particular guaranteeing a more adequate income for people with low incomes or more generally, making the labor market more attractive in terms of wages.

“Just because we are retired does not mean that we cannot does not benefit society. We work our whole lives to reach this stage and pension systems need to be able to guarantee a decent life for people when they are no longer able to work,” she concludes