With the labor shortage in recent years, various incentives have been put in place by governments to encourage people of retirement age to stay or return to the job market. Concretely, what does that give?
Published at 6:00 a.m.
The situation
Claude* is retired. He receives his Old Age Security (OAS) pension, the Guaranteed Income Supplement (GIS), his pension from the Quebec Pension Plan (QPP) and his pension from the pension fund of a former employer. However, he agreed to return to work with his former employer until the position was filled.
“I wonder if I will be penalized in terms of my pensions,” he asks. Is there a maximum amount I can earn in a year without it being a cut? »
The financial portrait
Claude's monthly income
Old Age Security Pension and Guaranteed Income Supplement: 1133 $
Pension from the Quebec Pension Plan: 780 $
Pension fund pension: 152 $
The advice
Claude lives with little income each month, i.e. $2,065, part of which comes from the GIS which is non-taxable, notes Mylène Lapointe, financial planner and group savings representative attached to PEAK Investment Services.
PHOTO DENIS GERMAIN, SPECIAL COLLABORATION ARCHIVES
Mylène Lapointe, financial planner and group savings representative attached to PEAK Investment Services
A temporary job will definitely help.
Mylène Lapointe, financial planner and group savings representative attached to PEAK Investment Services
Moreover, the governments of Canada and Quebec have implemented various measures in recent years to encourage people to stay in the job market, and Claude will be able to benefit from them.
Fewer SRG cuts
The GIS is a tax-free monthly payment that a person receiving the OAS pension can obtain starting at age 65 if they have low income. The amount is determined based on family income. Claude provided us with a single amount that combines his OAS pension and his GIS, but we estimate that they are respectively $728 and $405 monthly.
Previously, for every additional dollar earned, a person lost two dollars of GIS. “People thought twice before working,” says Mylène Lapointe. But now, the first $5,000 of employment income is exempt from the calculation. »
Then, between $5,001 and $15,000, only half of the income earned will be taken into account. “So, let's say that Claude earns $7,000 more in 2024 thanks to employment income, the first $5,000 will have no impact, then, for the remaining $2,000, only $1,000 will be taken into account,” explains the financial planner. This income will take $2,000 annually from his GIS, but he will still have a better income at the end of the year. »
To calculate the impact of a new income on one's pensions, it is possible to use the Government of Canada's estimator.
Consult the Government of Canada estimator
Stopping QPP contributions
As Claude also receives his QPP pension, he can request that QPP contributions not be deducted from his pay.
“This is a measure in place since 1is January 2024 which allows workers aged 65 and over to have more in their pockets, says Mylène Lapointe. It still makes a good difference. »
Tax credit for career extension
The Quebec government has also implemented the non-refundable tax credit for career extension. This credit allows you not to pay tax on a portion of eligible work income that exceeds $5,000. Revenu Québec specifies that in 2023, it was a maximum of $1,500 for people aged 60 to 64 and a maximum of $1,650 from age 65.
This measure was created to encourage experienced workers to stay in the job market, so added to the other elements, it starts to make a big difference.
Mylène Lapointe, financial planner and group savings representative attached to PEAK Investment Services
Pension income amount
The expert wishes to mention the pension income tax credit even if Claude automatically benefits from it since he has a pension fund with a former employer. People who do not have this privilege, but who have a registered retirement savings plan (RRSP), can benefit from the credit by converting part of their savings into a registered retirement income fund (RRIF). The amount of eligible pension income is $2,000 at the federal level and $3,374 in Quebec.
“This credit is often poorly managed,” she notes. It doesn't work if you dip into your RRSP. You must first have transferred an amount to your RRIF, but that does not mean that you have to transfer all your RRSPs to a RRIF. We choose the appropriate amount considering that it will generate a minimum that will have to be withdrawn during the year. »
Finally, for the analysis, Mylène Lapointe advises also looking at elements outside of taxation. “Older people who work or volunteer are in better health,” notes the financial planner. It's very beneficial to have a schedule, to get out of the house, to see people, to develop social relationships, to do something rewarding. This is something I work on a lot with my clients in retirement plans, because it's important to stay active. »
* Although the case highlighted in this section is real, the first name used is fictitious.
