Health industry workers: Everything you need to know about the RREGOP

What is the RREGOP?

The RREGOP was set up in 1973. Some of their most important provisions were recently changed in 2016. Since then, not everyone is a fan. While some appreciate the fact that these plans seem safe from stock market fluctuations, others are discouraged by their low indexation rate and integration into the Quebec Pension Plan (QPP). Regardless, it’s still a major benefit that attracts workers to the public sector.

Membership to this defined benefit pension plan is mandatory for all relevant workers, whether they’re permanent or on a contract, full-time or part-time, Quebec public sector workers or education, healthcare and social services sector workers. A detailed list of its membership group is annexed to the Act Respecting the Government and Public Employees Retirement Plan.

What is the best withdrawal strategy for a RREGOP?

“It’s a good idea to wait until you’re 65 years old before you start claiming your QPP benefits. The integrated plans level out your retirement income significantly, such that sometimes it’s best to hold off for a bit,” suggests Vanessa Houghton, senior advisor at the National Bank. To find out the best withdrawal strategy for you, it’s best to speak with a financial planner. “We evaluate these things case by case.”  

How can I optimize my various pension plans?

In the long run, its integration into the QPP and the fact that benefits under the RREGOP aren’t indexed in any significant way means that you could end up eating into your savings. “That’s why it’s a good idea to plan for other sources of income upon retirement, like an RRSP or a TFSA.”

“Of course, there’s no magic recipe for optimizing your pension plans. Once again, it really varies case by case.”

It’s worth noting that there’s a contribution maximum for RRSPs. It cannot exceed 18% of the income you earned in the previous year, and there’s also an annual limit of $27,230. In 2019, the limit was $26,500.

“At first glance, this limit means that few RREGOP members will have any room to contribute to their RRSP,” adds Vanessa Houghton. “That’s because when someone contributes to their RREGOP, this triggers a pension adjustment that reduces the room they have to contribute to their RRSP, which is capped at 18% of the income earned the previous year. But nothing stops them from putting the rest into their RRSP and letting that money grow.”

When asked which workers are affected the most by this structure, Vanessa Houghton cites the public health workforce. “Generally, RREGOP members have their contributions calculated according to their base salary, excluding any overtime. For many hard-working public sector professionals, like nurses, overtime represents a considerate portion of their income. These extra hours can be optimized using an RRSP.”

“To determine the best strategy and choose the right savings vehicle, it’s in a member’s best interest to speak with a financial planner,” advises Vanessa Houghton.

Can I take a phased retirement and still benefit from the RREGOP?

“Of course,” says Vanessa Houghton, “but there’s a specific procedure for that.” If you choose to take a phased retirement, you must first check your eligibility by filling out the Application for Confirmation of Eligibility for Phased Departure form, available online at Retraite Québec’s website.

If applicable, you will have to make certain arrangements with your employer, particularly as it pertains to the duration of your phased departure. Here are the conditions to meet:

-          The phased departure must last at least one year, but cannot exceed five years.

-          Your new work schedule may not be less than 40% of a full-time schedule.

-          You may not continue to work at the end of the agreement.

-          You must be a full-time or part-time employee.

-          You must be a permanent employee, meaning you may not be considered a seasonal or on-call worker by law.

Taking a phased retirement should not affect your pension under the RREGOP. Contributions are based on the income you would have earned if you hadn’t decreased your work schedule. “If your work conditions permit it and your financial planner gives you the green light, why not take this opportunity?” concludes Vanessa Houghton.

How does the RREGOP work?

“The RREGOP is a rather advantageous plan,” explains Vanessa Houghton. “Members can benefit from an immediate pension that is payable the day after they retire.” Depending on your particular situation when you retire, you can receive an immediate reduced or unreduced pension.

To be eligible for an unreduced pension, you must be at least 60 years old or have accumulated 35 years of credited service. The amount you receive will take into account the annual pension accrual rate (2%), the years of service credited for calculation purposes (40 years maximum), and the average salary of the 5 best-paid years of your career.

If you are between the ages of 55 and 61 and you haven’t accumulated 35 years of credited service, you will receive a reduced pension. It will amount to 0.33% per month of early retirement, for a total of 4% per year. “The employee’s pension is reduced because they will be receiving it over a longer period of time, rather than waiting until they’re 61 years old or reach 35 years of service. This ‘penalty’ is a way to compensate for that,” Vanessa Houghton clarifies.

“For RREGOP members whose pension will take effect on June 30, 2020, the permanent reduction will correspond to 0.5% per month of early retirement, for a total of 6% per year.”

Whether it’s reduced or unreduced, pensions are indexed every year to better reflect the cost of living. In 2019, the index was set at 2.3%. Since January 1, 2020, the rate has been at 1.9%.

This increase is calculated according to the number of years of credited service:

-          For years of service worked before July 1, 1982, the pension is fully indexed using the rate of increase of the Pension Index (PI). 

-          For years worked between July 1, 1982 and December 31, 1999, the index is calculated using the rate of increase of the PI minus 3%. If the rate of index of the PI is equal to or less than 3%, this part of the pension is not indexed.

-          For years of service worked since January 1, 2000, the index uses the more advantageous of the following formulas: 50% of the rate of increase of the PI, or the rate of increase of the PI minus 3%.

What is the contribution rate?

In 2019, the RREGOP contribution rate was 10.88% of a member’s eligible income. In 2020, it is set at 10.63%. “To make things easier, Retraite Québec will mail you an information leaflet every year that details these calculations,” Vanessa Houghton reassures us.

“Once you have this document, you’ll be able to estimate the total amount that you will receive upon retirement by using an online calculator available on Retraite Québec’s website.”

How do you claim your RREGOP pension?

“Claiming your RREGOP benefits once you retire is fairly simple. All you have to do is fill out the Application for Retirement Pension form online on Retraite Québec’s website. Most members sign up for direct deposit, and their pension is paid out monthly.”

In filling out this form, you will be able to choose whether you receive your benefits by direct deposit or cheque. If you choose direct deposit, your pension will be paid out on the 15^th of every month. If the 15^th is not a business day, it will be sent to you on the preceding business day. If you prefer receiving it by cheque, it will be sent out 48 hours before this date.

Is the RREGOP pension taxable?

Tax-wise, the government considers RREGOP pensions as a source of income like any other. The money you receive is therefore taxable, just as it is during your working life.

“Federal and provincial taxes will be deducted from your pension such that it reflects your personal tax credit. Using the same calculator available on Retraite Québec’s website, you can calculate the approximate amount of your net pension after taxes,” Vanessa Houghton points out.

How does the RREGOP work with the QPP?

Once you’re 65 years old, your pension under the RREGOP will be reduced to take into account the fact that you’re eligible to receive benefits from the QPP. “It sounds more dramatic than it is,” warns Vanessa Houghton. “In fact, the pension under the QPP corresponds to about 80% of your average admissible income.”

This integration is mandatory and cannot be circumvented as it is outlined in the Act Respecting the Government and Public Employees Retirement Plan.

With a few exceptions, the reduction is calculated in function of the QPP annual pension integration rate (0.7%), the years of service relevant to this calculation (35 years maximum), and the average maximum pensionable earnings (MPE) for your last 5 years of service. You can consult your statement of participation for more details on how this calculation is made.

Which life events affect the benefits?

As per the law, certain major life events will affect how RREGOP benefits and their transfers are calculated. Please note that some personal life events may affect your tax deductions directly, such as the death of your spouse, or your children no longer being in your care.

Couple’s separation

If you were in a relationship during your working life, your separation may lead to a partition of the benefits accrued under the RREGOP.

For married couples, the value of the accrued benefits will be partitioned in the event of the dissolution of the family patrimony, in accordance with the provisions of the law.
For unmarried couples in a common-law relationship, this partition isn’t automatic, but arrangements can be made using a written, notarized agreement. Both parties have one year following the date upon which they stop living together to set such an agreement. 

Regardless of their civil status, couples who want to share benefits accrued under the RREGOP must submit a request to determine its value and collect payments from the appropriate administrative bodies. The shared sums may then be transferred into an annuity contract, a locked-in retirement account (LIRA), a life income fund (LIF), an RRSP, or a registered retirement income fund (RRIF). After that, you will have to send the contract indicating your choice to Retraite Québec, along with the Canada Revenue Agency’s Direct Transfer of a Single Amount form. For help selecting the financial product that best suits your situation, feel free to speak with your financial planner.

Death after retirement

The surviving spouse will be eligible to receive a percentage of your pension. Depending on what you chose when you filled out the online Application for a Retirement Pension form on Retraite Québec’s website, they may receive 50% to 60% of your pension. Also, please note that you don’t need to outline any clauses to this effect in your will. The provisions under the Act Respecting the Government and Public Employees Retirement Plan already dictate the partitioning of a pension following a death.

If you don’t have a surviving spouse, the benefits you accrued under the RREGOP may be given to your heirs. The benefits will be calculated according to the total amount you contributed to your RREGOP, plus interest accumulated before you retired, minus the pension already paid out to you.

If you work in the healthcare sector, you can learn more about the different financial services and advice available to you.