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September 18, 2021

Government trims benefits for retired public servants

Hands off our benefits!

That’s the rallying cry being heard among retired public servants worried that the federal government is going to make good on its threat to reduce some of their retirement benefits

In its last budget, the government did announce that it intended to review retirees’ benefits, including pensions, health and dental care, and life insurance. And it's making good on its promise.

At issue right now is Treasury Board’s proposal to double the premiums that retired public servants pay for the public service health care plan while also limiting their eligibility to join the plan.

The government wants retirees to pick up half of the cost of contributions to the heavily subsidized health plan rather than the 25% they pay now. It also wants that the minimum years of service required to join to be extended to 10 years from the current two.

Advocacy groups representing retired civil servants think this is unfair. They're also worried that extending the vesting period for the health plan this way might lead to other changes, like how long it would take public servants to qualify for a pension. 

And that would be just fine, maintains the Canadian Federation of Independent Business in a recent report called Canada’s Two-tier Retirement. It's time to level the playing field, the CFIB argues.

Two-thirds of Canadians working in the private sector, or 80% of the country’s employees, don't have a company pension plan. In contrast, 87% of public servants, who make up 20% of the country’s workforce, have a workplace pension plan, which, in most cases, guarantees the benefit no matter what.

The whole set up, including retiree benefits, is simply unsustainable, argue Bill Tufts and Lee Fairbanks, co-authors of Pension Ponzi: How Public Sector Unions are Bankrupting Canada’s Health Care, Education and Your Retirement.

Government-sponsored pension plans across the country are facing deficits as a result of lacklustre stock market returns, historically low interest rates and changing demographics.

Realizing this, provinces like Alberta are already taking action by actively discouraging early retirement and cutting cost-of-living increases although tyhe changes won't affect those who've already retired.

Shoulds retired civil servants pay a greater share of their retirement benefits? Or is a deal a deal, regardless of the ongoing costs?

By Gordon Powers, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...