The same kind of collapse of investment returns that set back the retirement dreams of countless Canadians in the private sector has also hit the government plans, the analysis notes. But there are two key differences.
One is that the feds continue to massively understate the unfunded liability of meeting lavish retirement promises to public servants, military personnel, RCMP and, of course, MPs.
The other is that, no matter how badly the total is underestimated, taxpayers - "largely the same people who are now postponing and scaling back their own retirement expectations" - will be on the hook for the difference. This is the Howe Institute's second sobering tilt at federal pensions in recent weeks. Just over a month ago, it published an analysis documenting the richness of several different federal plans compared with typical private-sector plans.
Among other things, it pointed out that employees enrolled in federal pension plans can get tax breaks on much larger annual contributions than the rest of us are allowed, and that the employer's contribution is far larger than in private-sector plans.
Now the author, Howe president William Robson, notes that while Ottawa acknowledges an unfunded liability of $148.9 billion - more than a quarter of the reported federal debt and about $17,000 per Canadian family - this is based on assumptions of what may be unrealistically high returns.
His own calculations, based on cur-ent market returns, put the amount at almost $267 billion at the end of 2011-2012.
"That is almost $118 billion more than reported - nearly $31,000 per family of four," he wrote.
Nor is this understating of the liability a new thing tied specifically to the lousy market returns of the last four or five years.
"This startling difference between the reported and fair-value tallies of Ottawa's unfunded pension liability has been growing for more than a decade," he notes. And nor will the fairly tepid pension reform provisions in the last federal budget turn this around. The budget increased the amount that federal employees must contribute toward their own pensions.
Robson argues that, although this remedy helps, it can never go far enough to fully correct the problem.
Because the pension plans are designed to be only partly funded - and the MPs' plan has no assets at all - taxpayers are still left holding the bag for the unfunded portions of the plan. Even so, Robson believes the employee contributions will have to be ramped higher still.
As well, he says, the pay-as-you-go approach needs to be replaced by proper funding. And the benefits will have to be further tightened, including an increase in the age at which public servants can start to draw benefits.
To balance these changes, he said, tax breaks could be extended to public servants, as well as to others in the workforce, to allow them to save more on their own.
But a key is for Ottawa to start recording its unfunded liabilities more honestly - based on actual returns, not pie-in-the-sky hopes. Private plans aren't allowed this cop-out to paint a falsely rosy picture, and the rules shouldn't treat government any differently.
Original Article
Source: canada.com
Author: Don Cayo
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