The largest union representing federal public service workers has received assurance from Finance Minister Jim Flaherty that its members’ pensions won’t be on the chopping block when the government’s belt-tightening budget comes down.Public Service Alliance of Canada President “John Gordon has said … that he has a private agreement that public service pensions won’t be touched,” said PSAC pensions and disability specialist James Infantino.
Still, that doesn’t mean that public service workers aren’t “highly concerned” about the fate of their pensions, Mr. Infantino said, after Mr. Flaherty (Whitby-Oshawa, Ont.) seemed to put them back on the table last week at a press conference in Vancouver.
“If one’s going to make any sort of intelligent assessment of government spending in Canada, one has to look at the cost of remuneration including benefits and pensions,” Mr. Flaherty told reporters Jan. 10.
Mr. Flaherty said last week for the first time that some departments could be cut by more than 10 per cent as the government looks for ways to cut over the next three years at least $4-billion annually from the $80-billion a year spent on direct programs.
Public service pensions were established in 1924. Right now, the average worker retires at age 58 with a pension of $25,000 a year. Pensions are calculated by the formula of two per cent, multiplied by the number of years of pensionable service and the average of their five highest consecutive earnings years. Public service unions and the government already agreed to increase the employee share of pension contributions to 40 per cent from 28 per cent six years ago, and making any further changes to the contribution ratio would have to legislated federally.
But the government can’t make public service, or nation-wide, pension reforms without first looking at their own retirement packages, says Sprott School of Business professor Ian Lee.
“The Finance minister, in my opinion, cannot address old age pensions…while saying that, ‘You MPs can have Cadillac pensions and public servants can continue to retire at 55 or 58 or 59.’ It’s politically not sustainable,” he said.
NDP pension critic Wayne Marston (Hamilton East-Stoney Creek, Ont.) said he doesn’t see the necessity of reforming MPs’ pensions right now, as they were already reformed in 2000 and since then have been more reasonable.
MPs’ pensions are based on a similar formula to public service pensions. Since the 2000 reforms, the average member’s pension is about $35,000, noted NDP MP Joe Comartin (Windsor-Tecumseh, Ont.) who is the opposition spokesperson for the House of Commons’ Board of Internal Economy.
The more than $100,000 pensions for some MPs defeated in the last election were for MPs who were grandfathered into the old system, said Mr. Comartin.
Mr. Comartin said that media speculation about cuts to MPs’ pensions hasn’t been reflected in anything he’s heard so far.
He added that any changes to politicians’ pension plans would likely take effect for new MPs, meaning that savings would be years in the future and so not be of any use to a government looking for billions in savings in time for the next budget.
Liberal MP and pension critic Judy Sgro (York West, Ont.) said that she doesn’t see why MPs or public servants have a right to better pensions than the average Canadian, but she doesn’t think the answer is cutting their plans.
“I’ve always believed in fairness…but I have to say at the same time, it’s not about bringing people down,” she said.
The debate around trimming public servants’ and MPs’ pensions centres on changing the pensions from a defined benefit to a defined contribution plan.
In a defined benefit plan, both workers and employees contribute to the pension fund, which is invested. Upon retirement, the worker is guaranteed a certain level of benefits. If there is a shortfall in funding, due to too many pay outs to members, or an investment loss, the employer is responsible for making sure the benefits are maintained.
The Canadian Taxpayers Federation, which has been calling on MPs to reform their pensions, estimates that Canada puts in $4 for every $1 MPs contribute to their plan. MPs are eligible for pensions at age 55, after working six years in Parliament.
The federal public servants’ fund is managed by a Crown corporation, the Public Sector Pension Investment Board. Public servants can retire on a full pension at 55 after 30 years of service.
In a defined contribution plan, while both workers and employers still contribute, the workers’ payout depends on how the pension fund fares on the market. If the pension fund suffers a loss, so does a worker’s retirement.
Moving public servants and MPs to defined contribution would be a “terrible move,” said Mr. Marston.
A defined benefit plan offers efficiencies and stability that would be lost in a defined contribution plan, said Mr. Infantino.
The reason the government needs to reform the public service’s pension plan, according to Mr. Lee, is that the plan currently has a $150-billion unfunded liability, according to the public accounts. An unfunded liability isn’t a current debt, it’s the projected shortfall between the future value of the fund and the expected future payments required to honor pension obligations.
“The problem with defined benefit is in this era where we’re living a lot longer and the returns for many of the plans are diminishing, we’re running up unfunded liabilities,’” said Mr. Lee.
Bernard Dussault, the former chief actuary of the Canada Pension Plan, disagreed with Mr. Lee’s assessment in an interview with The Hill Times.
“Actuaries predicted in 1966 that there would be improvements in mortality, in longevity. The financial standing is more stable that what people say,” he said.
Mr. Dussault now works for the Professional Institute of the Public Service of Canada as a consultant actuary.
Mr. Dussault said that the public service’s pension plan cost 19 per cent of department’s payroll 40 years ago, and it is still at that proportion today.
“The public service pension plan has no solvency problem,” he said
“If the only problem would be one of solvency or deficiencies in the pension plan, the solution is not to change the nature of the plan it’s to change the financing of the plan or to reduce the scope of the plan,” he added.
One of the ways to reduce the scope of the plan would be to raise public servants’ minimum age of retirement.
If the government decides to go ahead with changes to public servants’ pensions, they aren’t facing many obstacles. Federal government pensions aren’t part of collective bargaining agreements but are legislated under the Public Service Superannuation Act. The government could simply amend the act.
“For the government to step in and revise that, unannounced or on the quick draw, would be very disconcerting,” said Mr. Infantino.
If that were to happen, both he and Mr. Lee agreed that the changes would almost certainly be on a go-forward basis, meaning that it would be 30 to 40 years before the government realized the full savings of any amendments.
Both the unions and MPs cited strong pensions as a recruitment tool.
At the time MPs pensions were established in 1952, then prime minister Louis St-Laurent was concerned that the inability of members to save well for their retirement was deterring people from running for office.
Even today, Mr. Comartin noted that it took him 10 years to accumulate the same level of pension benefits as a Member of Parliament that he would have enjoyed had he simply stayed in private practice as a lawyer.
Mr. Comartin noted that MPs have already been forced to tighten their belts, as their wages and office budgets have been frozen since 2010. He said that the Prime Minister should look at the hiring and budget increases in his own offices first in the PMO and the PCO. The Privy Council Office spent $159.9-million in 2010-2011, according to the public accounts. This is an increase of almost $1-million over last year, and is an all-time high under the Harper government.
“They could do it by freezing their own hiring levels or maybe cutting them back to where they were before we saw this significant expansion in government. It would be a much more appropriate symbolic gesture,” he said.
Original Article
Source: Hill Times
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