Quebec’s pension fund, the Régie des rentes du Québec (RRQ) is exploring the possibility of letting Quebec employees make voluntary contributions in addition to the mandatory deductions already taken from their paycheques. The RRQ is thinking about offering this option through Tax-Free Savings Accounts (TFSAs), an idea that has raised the ire of leaders of financial institutions.
Industry stakeholders who asked to remain anonymous are criticizing the RRQ for encroaching on the turf of private financial institutions. These institutions are presently gearing up for the launch of TFSAs, a promising new market for banks, insurers and other investment companies (see pages 6 to 10).
The most recent actuarial study from the RRQ reveals that the current Quebec pension contribution rate is not sufficient to meet the needs of future generations. The RRQ is therefore looking for other avenues to encourage saving.
Quebec workers could make voluntary contributions to the RRQ into a personal account, which could be in the form of a TFSA. This is one of fifteen solutions put forward in the RRQ’s working paper called Toward a Strong and Fairer Québec Pension Plan, which was published in the second quarter of 2008 and which aims mainly at proposing ways to stabilize the financing of the Plan.
TFSAs are the new tax shelter devised for Canadians aged 18 and older that will be available as of January 2009. TFSA account holders will be able to contribute a yearly maximum of $5,000 and see their investments grow on a tax-free basis. In terms of the tax treatment of voluntary contributions, the working paper from the RRQ states that "it would be interesting to take advantage of the new Tax-Free Savings Accounts recently introduced in income tax legislation."
This is an avenue that the RRQ is hoping will bolster the government pension plan by allowing Quebeckers to make voluntary contributions without a corresponding payment from employers. According to the RRQ, this measure could promote saving among Quebeckers.
"This addition to the Plan, available to everyone but especially for those with no other retirement savings vehicle, would provide an additional tool for saving for retirement," the working paper reads.
The document also states that "the contributions could be deducted at source or made in conjunction with the income tax return. The amounts would accumulate in an account under the person’s name and would give entitlement to an additional pension paid at retirement by the Régie des rentes du Québec."