Defer your pension to age 72? Quebecers now have the option

Under the Canada Pension Plan, contributors can defer receiving retirement benefits until age 70, at which point they receive a retirement benefit 42% higher than what they would have received at age 65.

The Quebec government announced in last year’s budget that employee and employer contributions to QPP would cease at the end of the year in which the employee reaches age 72. The change was part of a broader set of changes to the QPP meant to encourage Quebecers to work past age 65.

Effective as of Jan. 1, Quebecers aged 65 and over who are still working and already receiving the QPP retirement pension can choose to stop contributing to the plan, as workers in the rest of Canada already can under the CPP.

In addition, low earning years after age 65 will no longer lower the average earnings used to calculate the QPP retirement pension, matching the existing rules under the CPP.

In the 2024 Quebec budget, tabled March 12, the government proposed allowing seniors living with a disability to receive the full QPP retirement benefit at age 65, even if they choose to receive a reduced retirement benefit at age 60.

To defer or not to defer

Under changes effective this year, Quebecers will receive a 0.7% boost in QPP benefits for each month they defer their pension beyond age 65 until age 72. Beyond age 72, there is no benefit to deferring the QPP.

According to a Mercer report on QPP changes in the 2023 provincial budget, “delaying the start of the pension could be a good way for workers to manage retirement risks: investment, longevity and inflation.”

QPP contributors who earn sufficient income through their 60s and early 70s — particularly people whose income is subject to the old age security (OAS) pension recovery tax — may be best positioned to defer their QPP benefits, said Lea Koiv, a pension expert and president of Lea Koiv & Associates Inc. in Toronto, in an email.

“If someone is having their OAS substantially or fully clawed back, why take [the QPP retirement benefit]? [They] might as well wait for a future year,” Koiv said.

Choosing to defer QPP until age 72 may require drawing down on investments in early retirement to fund expenses, but doing so offers protection against longevity risk, said Daniele Degano, financial planner with PWL Capital Inc. in Montreal, in a Feb. 9 blog post.

Someone who defers taking QPP until age 72 will start coming out ahead in their mid-80s relative to someone who chooses to take QPP at 65, Degano said.

“Ultimately, the question to ask yourself is this: Are you more comfortable with a slightly larger buffer against a long life if it comes at the cost of a little less money in the bank early in retirement?” Degano said.

However, if someone is facing health issues and a possibly shortened lifespan, receiving pension retirement benefits sooner rather than later may be prudent, Koiv said.