Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Monday, December 02, 2013

The great pension divide: an in-depth look

OTTAWA — Generous public pensions are blowing holes in government budgets, while many private sector retirees are facing bleak financial futures.

A special edition of The West Block with Tom Clark dug into the great Canadian pension divide—a problem politicians can no longer avoid, as many public sector pensions begin to eat up a bigger share of government budgets.

When it comes to retirement, civil servants are in a class of their own, often enjoying generous benefits and the freedom to retire before turning 65.

But that cozy reality is being threatened as governments increasingly signal they can no longer afford such plans.

On the private side, however, workers can only ever dream of the perks their public sector peers are trying to hang on to.

“I don’t know exactly when it will happen, but I’m quite sure if nothing is done to the public sector pensions, there will be a revolution in Canada within 10 years,” said Don Drummond, an adjunct professor at Queen’s University School of Public Policy.

“We can’t have these two different strands of society where the politicians and the civil service get a subsidized pension and everybody else who is subsidizing it, doesn’t have access to anything remotely similar.”

In the public sector, 87 per cent of employees pay into a pension, with the vast majority paying into what’s called a defined benefit plan—a plan through which employees are guaranteed a specific monthly payment on retirement based on their earnings, time in the public service and age. If there’s not enough money in the government coffers, taxpayers are expected to make up much of the difference.

The current unfunded liability for federal civil servants alone is estimated anywhere between $147 billion and $227 billion.

In the private sector, meanwhile, fewer than 25 per cent of employees even have a pension plan. And half of those who do, pay into a defined contribution plan, which means payments upon retirement are dependent on investment returns. Once that money runs out, so does the pension.

As people live longer and investment returns shrink, the divide is stark.

“So we’ve got to compress that period that governments are going to be paying out these pensions,” said Ian Lee of Carleton University’s Sprott School of Business. “I think the ministers of finance across the country are suddenly waking up to the reality that this is going to blow a hole, especially in smaller provincial governments such as New Brunswick.”

New Brunswick, in fact, knows all about this growing divide, and has introduced legislation to make changes to public service pensions.

New Brunswick Energy Minister Craig Leonard represents a riding in the provincial capital, where many public servants live.

Currently, accounting for the public pension funds are “reasonable,” Leonard said in an interview on The West Block.

“The real concerns we have are from recent mortality tables that we’ve had to implement, which all of a sudden has moved our actuarial liability up to a $1 billion,” he said. “It’s a substantial amount of deficit we’re looking at, and clearly the problems we’re looking at moving forward, with lower returns on investments.”

Taking steps to correct the issue, as the provincial government felt was necessary, it has proposed changes to some details of the public pension plan, including increasing contribution levels and moving up the retirement age.

While some public servants are understandably cold to the idea, the move was essential, Leonard said.

“I think it’s a situation where if we don’t, the risk is much greater down the road,” he said.

And the New Brunswick government is certain others will follow its lead.

“I think it’s an inevitability. The reality we see around the globe, defined benefit pension funds are in serious trouble, and it’s because of the way they were designed,” Leonard said.

In the private sector, meanwhile, three quarters of Canada’s workers don’t have any pension plan at all.

For them, the task of saving enough for retirement is daunting.

Carol Blake, 63, was a life-long contributor to the Canadian Pension Plan, although for many years she didn’t contribute the full amount.

Forced to retire last year after suffering a stroke, she had to move across the country to live with her daughter in British Columbia.

Next year, she’ll begin drawing on her CPP, which will give her $700 gross income per month. The following year, she’ll have to begin collecting Old Age Security, giving her an extra $500 each month. She said she plans to supplement that $1,200 per month with her own savings.

“Here, after working for the better part of 50 years contributing to the economy and growth of this country, I will now need to somehow manage to live on far less than $18,000 a year,” she said. “Let’s hope I don’t age beyond 70, as by then all savings will be long gone just trying to manage the essentials of life … I am by far not alone in this dilemma.”

Jim Leech, chief executive officer of the Ontario Teachers’ Pension Plan, one of the largest pension funds in the country, said Blake’s story is unfortunately more common than many would hope or think.

“She obviously is one of the lower income workers, and if she is relying simply on Canada Pension Plan, [Old Age Security] and [Guaranteed Income Supplement], people in her bracket are really in for a rude awakening when it comes to retirement,” he said.

Leech said he has three recommendations to help improve Canada’s current pension landscape.

The first concerns low- and mid-income workers earning between $30,00 and $100,000, for whom CPP, OAS and GIS are not enough to live off, Leech said.

“There should be an enhancement, a modest enhancement, to the Canada Pension Plan to augment their income,” he said.

GIS and OAS, meanwhile, currently represent one of the largest budget items for the federal government.

“We can’t really afford to see that expand that much farther,” said Leech, who has published a book about how Canadians can better prepare for retirement.

His second recommendation touches on the discussion between defined contribution and defined benefit pension funds.

“It’s as though it’s black and white and there’s no middle ground,” Leech said. “Our view there is that the workplace pension plans that are the [defined benefit] model need to be saved.”

That doesn’t necessarily mean sticking with the status quo, but rather moving toward a more equitable risk structure between employers, employees and pensioners, he said.

“Basically, the defined benefit model is by far the least expensive way to save for retirement,” Leech said.

The third recommendation has to do with the 60 per cent of Canadians who have no workplace pensions at all.

“We need to provide vehicles for their retirement,” he said.

Original Article
Source: globalnews.ca
Author: Staff  Global News 

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