Public service pension shortfall tops $65 billion: C.D. Howe
As the first wave of baby boomers heads to retirement, the nation is dividing into two classes of workers: those who have public service pensions and those who don't.
Retired government workers are twice as likely to get a pension as their counterparts in the private sector, and the typical benefit is far more generous, according to a recent C.D. Howe Institute report.
At present, pension-plan members account for a third of total contributions on average whereas the government — through the taxpayer — makes up the rest.
Backing promises to public service workers, the RCMP and Canadian Forces would actually require contribution rates of 35, 41, and 42 per cent of pay respectively, the report declares.
That’s $65 billion more than reported in the public accounts – which is nothing short of crazy, claims the Canadian Taxpayers Federation.
To get back to reality, the federal government needs to consider a mixture of a variety of measures, including higher contribution rates from individual workers, reduced benefits, delayed retirement and a reduction in inflation protection.
To be fair, the Federation acknowledges, the government will likely need to grandfather some employees already close to retirement. But, for newer hires, it’s going to be all downhill.
First, says CTF head Kevin Gaudet, the government must convert the existing public service plan for non-grandfathered and all future employees to a defined-contribution plan like those in the private sector where an employee’s contributions are matched by the employer – in the case, the taxpayer – dollar-for-dollar and invested in the market.
If the markets crash or pension administrators misjudge returns, life expectancy or retirement rates, at least taxpayers aren’t on the hook for the shortfall, Gaudet says.
“Politicians have avoided making this tough decision and taking decisive action over fear of bureaucrat backlash. In doing so, they risk taxpayer backlash as these bills increasing come due. The choice for government is between fiscal prudence by reform or employee pandering and further reckless spending.”
Do you think government employees should contribute more for the generous benefits they get?
By Gordon Powers, MSN Money