When we think about retirement, one of the first questions that often comes to mind is: “What will my sources of income be when I stop working?”
In Quebec, two public sources of income almost always come up:
- the Quebec Pension Plan (QPP);
- the Old Age Security (OAS) pension.
The two are often mentioned together, but it’s important to understand their nuances so you can choose the right time to apply for them, because yes, it’s your choice!
The age at which you decide to retire will affect the amount you receive for the rest of your life. This is true for both the QPP and the OAS.
The QPP: a pension linked to your working career in Quebec
The Quebec Pension Plan (QPP) is a provincial public pension plan funded by contributions made during your working career. The amount you receive, therefore, depends mainly on:
- your employment income;
- the number of years you contributed;
- the age at which you start receiving your pension.
The “normal” age to apply for the pension is 65, but it is possible to apply earlier (as early as age 60) or later (up to age 72).
Apply early, on time, or later?
If you start receiving your pension at age 60, the amount will be permanently reduced. The reduction is 0.6% per month (or 7.2% per year) before age 65, which represents a maximum decrease of 36% for an application made at age 60.
Example for an individual who would be entitled to the maximum pension in 2025
- Age 65: $17,196/year for life
- Age 60: $11,005/year for life (36% less)
Conversely, if you defer your pension after age 65, your pension is increased by 0.7% per month, or 8.4% per year, until age 72.
Example for an individual who would be entitled to the maximum pension in 2025
- Age 65: $17,196/year for life
- Age 72: $27,307/year for life (approximately 60% more)
The break-even point: QPP at age 65 vs. age 72
The break-even point concept allows us to estimate the age at which it becomes more advantageous, in cumulative dollars, to have deferred your QPP rather than having started it earlier. In other words, we compare receiving a smaller amount over a longer period versus a larger amount over fewer years.
- If the person dies before age 83, choosing QPP at age 65 will have yielded more in total (in cumulative dollars).
- If the person lives beyond age 83, choosing QPP at age 72 becomes better in cumulative terms.
Important nuances (which may influence the break-even point)
The true break-even point may vary depending on:
- taxes (based on other incomes);
- returns if the amounts received at age 65 are invested;
- liquidity needs;
- health/longevity;
- coordination with OAS, RRIFs, employer pensions, etc.
The OAS: a federal pension linked to residence in Canada
The Old Age Security (OAS) pension is a federal program (Canada), and unlike the QPP, it does not depend on payroll contributions. It is based on:
- the age at which you start receiving the pension.
- your years of residence in Canada after age 18;
- your retirement income (because the OAS may be reduced if your income is high).
The OAS is available at age 65, with the option to defer until age 70.
Should you claim your OAS at age 65… or defer it?
Unlike the QPP, the OAS cannot be claimed before age 65. The choice is therefore mainly between starting it at age 65 or deferring it (until age 70) to obtain a higher amount for life.
If you defer the OAS after age 65, the amount increases by 0.6% per month, or 7.2% per year, up to a maximum of 36% at age 70.
Example for an individual who would be entitled to the maximum pension in 2025
- Age 65: $8,819/year for life
- Age 70: $11,994/year (approximately 36% more)
In addition, the OAS is automatically increased by 10% when you reach age 75.
As with the QPP break-even point, it is approximately the same at age 83.
The big practical difference: OAS can be reduced if your income is high
This is a very important point in retirement planning.
Unlike the QPP, the OAS can be partially or totally reduced if your net income exceeds a certain threshold. For 2025, this threshold was approximately $90,000 per year.
In practice, this means that when you start receiving the OAS, when you withdraw from your RRSPs/RRIFs, and where your retirement income comes from can have a direct impact on your actual net income.
In other words, you should not only look at the gross amount of the OAS, but also the tax payable and the potential effect of the OAS reduction.
How do you choose the right time to apply for benefits? (QPP and OAS)
There is no one-size-fits-all answer. The right choice depends on your personal situation and goals. The same broad criteria generally apply to both programs.
Here are the main factors to consider:
- If you need cash at the beginning of retirement, starting earlier may be a good decision, even if the amount is lower.
- The longer your life expectancy, the more advantageous deferral may be.
- Your other sources of income (employer pension, TFSA, RRSP/RRIF, non-registered investments, rental income, etc.)
- Your tax situation, as two strategies may result in similar gross income but very different after-tax income.
- Your long-term financial security goal. Deferring a benefit can help secure more guaranteed income at age 75, 80, or 85.
Conclusion
If you need income quickly, applying early may be the right decision.
If you are in good health and have other assets available, deferring QPP and/or OAS can be very advantageous in increasing your guaranteed income later in retirement.
The best approach is to compare a few scenarios before deciding, taking into account:
- your income needs;
- your tax situation;
- your other assets;
- and your long-term goals.
A well-considered decision today can make a real difference to your retirement income in the long term.
