The government’s plan to increase the age of retirement to 65 for all new hires could be the most controversial change to the pension plan that’s expected to be shortly introduced in a second omnibus budget implementation bill.
The move will not only force future public servants to work longer for the same pension as current workers, but many fear it will effectively kill the early retirement provisions that allow public servants to retire at age 55.
Treating workers differently has long been an anathema to unions which fear a ‘two-tier’ pension plan will open the door to reducing pay and benefits for future workers.
“It’s a principle of unions to never have two members who don’t get the same benefits,” said Claude Poirier, president of the Canadian Association of Professional Employees.
“It’s hard to swallow when colleagues with the same experience and training aren’t getting the same salary and benefits. This takes us back to when women were paid less than men … but the inequities now will be between young and older workers.”
Federal unions have fought campaigns — “Hands Off Our Pensions” — for several years to fend off changes to public servants’ defined-benefit pensions, but they face an uphill battle if MPs reform their generous pensions to bring them in line with Canadians who now have to wait until age 67 to collect old age security.
Unions long braced for the government to go after early retirement provisions, and so were baffled when Finance Minister Jim Flaherty announced in the March budget that the government planned to hike the normal retirement age from age to 60 to 65 for new hires beginning in 2013.
But it quickly became clear that the government was going to use the older retirement age to trigger a domino of changes, such as getting rid of the early retirement provision that allows public servants who have 30 years of service to retire with a full pension at 55 years old.
“I think the changes to the rules for retirement age will mean they want to look at everything,” said one union official. “The horse is out of the barn, but they aren’t publicly saying that. I think everyone is concerned about it and, if they do, it will create another morale issue. And the real battle will be if they try to change the age-55 formula.”
Currently, public servants can retire with a full, unreduced pension at age 60 unless they have 30 years of service by time they turn 55 years old. If they have that magical age and years of service combo, they can collect a full pension at 55, which amounts to two per cent for every year of service or 60 per cent of their best five years of salary.
Anyone else who retires before age 60 faces a five per cent a year reduction on their pension for every year under age 60. The maximum pension public servants can earn is 70 per cent of their salaries but they must work for at least 35 years.
With the reforms, public servants would have to work longer for the same pension. With the retirement age bumped five years to age 65, many expect the early retirement will now be age 60 — as long as they have worked 30 years.
In short, all public servants who retire before they turn 65 will face a pension penalty if they don’t have 30 years of service. For example, the public servants retiring today at age 60 with 20 years experience will collect pensions worth 40 per cent of their salaries. After the reforms, they would face a 25 per cent reduction on those pensions.
The government faces intense pressure from groups like Fair Pensions for All, the Canadian Federation of Independent Business and the C.D. Howe Institute to revamp public servants’ pensions, which they call “gold-plated” and “unaffordable” — especially when most taxpayers footing the bill don’t enjoy such generous benefits.
The government’s move to increase the retirement age was driven partly by Fair Pensions’ campaign to scrap a bridging benefit, which allows public servants to collect the equivalent of full CPP benefits when they retire at 55. The benefit is part of the public service’s pension plan, which is integrated with CPP. This ensures public servants can collect an unreduced pension until CPP kicks in when they turn 65.
Boosting the retirement age from age 60 to 65 would effectively eliminate this bridging benefit for many bureaucrats because fewer public servants could afford to retire at age 60 and face stiff penalties that will reduce their pensions.
Bill Tufts of Fair Pensions estimates that eliminating this “bridging benefit” for early retirees would reduce the pension plan’s liabilities by 30 per cent.
The Pension Plan Advisory Committee, which includes unions, retirees and senior bureaucrats, studies pension issues and makes recommendations to the Treasury Board president who is free to accept or reject the committee’s advice.
By all accounts, the committee couldn’t reach a consensus as they wrestled with the cascading impact of changing the retirement age from 60 to 65.
They argued the consequences are complex and could trigger a domino of changes that no one has a handle on yet. Other than saving money on pensions, an older public service is a new human resources strategy that raises all sorts of other issues.
The other big issue the advisory committee had on its plate was the March budget provision that called for public servants to increase contributions to their pension plan so they are paying half the bill. Public servants slowly increased their share and now pay about 37 per cent of contributions with the government paying the remaining 63 per cent.
Indications are the committee recommended phasing in the 50-50 sharing over five years beginning next year, but the government wants a shorter two-year phase-in. The government, however, has shown no interest in giving federal unions joint management of the plan once workers are footing half the contributions.
Original Article
Source: canada.com
Author: KATHRYN MAY
No comments:
Post a Comment