25
FEATURE ARTICLE
ACTUARIAL ANALYSES
OF THE QPP AND CPP:
ADDED VALUE FOR
CONVERSATIONS WITH
CLIENTS
At the end of 2019, the triennial actuarial analyses
of the Québec Pension Plan (QPP) and Canada
Pension Plan (CPP) were released. These brand-
new analyses are based on the data as of December
31, 2018, but the processing time being naturally
long, the reports were published in December 2019.
Summary of the plan
Appendix 1 of the QPP actuarial valuation provides
a summary of the basic plan and the two parts of
the additional plan. Several tables clearly show the
changes that are gradually being introduced.
Financial planners can refer to Table 14 (contribution
rate prescribed by law for the basic and additional
plans), which shows the changes in the required
contributions and includes several sections that
describe the basic benefits, disability benefits and
survivor's and orphan's benefits. For example, the
information at the bottom of this page, from the
Daniel Laverdière
ASA, F.Pl.
Senior Manager
Expertise Center
National Bank Private Banking 1859
table on page 54 of the document, shows how the
survivor's pension is calculated. It can be used to
provide explanations to a client.
Long-term funding
Financial planners are often asked to discuss QPP
benefits and whether they should be included in a
retirement plan. Future retirees sometimes worry
there could be a problem with the long-term
funding of the public plan. There is good news on
this front! Table 5, which gives projections for the
basic plan, and Table 11, which shows the projected
reserves based on contribution rates prescribed by
law for the additional plan, anticipate a growth in
funds for the long term, and everything suggests
that the current contribution rates for both the
basic and additional plans are sustainable.
This graph of the basic plan, shown on the next page,
clearly illustrates that since the QPP contribution
rate was increased, at the time of the 2009 updated
analysis, the plan's asset/expense ratio has continued
to improve. We can see it in 2012 (green), 2015 (blue)
and finally 2018 (grey), where the ratio exceeds 6 for
the very long term. The black line shows the ratio
attained, and we can also see the severe market
correction in 2008.
As for the additional plan, which was just added
in 2019, the ratio is completely different. It will be
close to 80 in 2026 and hovering around 28 by
2068. The funding method for the additional plan is
different from the basic plan and ensures that 70%
of the plan's income will come from returns on the
investments (compared to 30% for the basic plan).
This can be explained by better intergenerational
equity; more of each person's benefits will be
capitalized from their own funds.
