I always thought that pension funds basically have two parties who which have legal obligations to ensure the fund is “funded”. First the employer, Second the employee. If a fund happens to have a surplus, the employer has first rights to decrease their payment to the fund. SO , when a fund has a shortfall,who of the two parties has the legal obligation to make sure the fund returns to balance? If the taxpayers of NS are now on the hook here , then we need to find a way to tell them, tell them the dollars involved and also tell them the WHO is running the sinking ship. !!!!
Clearly the tax payers should not be asked to foot the shortfall! The plans need to be brought back in balance by looking at contributions and adjusting benefits! All of us in the private sector do not have the luxury of dipping into the public purse and nor should anyone else for that matter!
Here is the minsters explanation of his decision (from the Nova Scotia Pension Agence Website):
General Details
What is happening to the Public Service Superannuation Plan?
Changes are being made to Nova Scotia’s Public Service Superannuation Plan (PSSP) to
improve its long term health and to protect basic pension benefits for all members. The
changes, most of which are effective April 6, 2010, are designed to ensure the plan is
approximately 100% funded at January 1, 2011.
Why are the changes necessary?
The PSSP has been underfunded for some time. This means the plan doesn’t have enough
assets to cover all of its long-term pension obligations.
Rising pension costs are related to three things: the structure of pension benefits, the fact that a
larger number of employees are retiring or approaching retirement age, and the recent turmoil in
financial markets that has affected the value of the plan’s assets.
The PSSP must be properly funded to ensure that benefits are available for retirees. If these
changes are not implemented, the plan’s funding levels will continue to decline. The longer we
wait, the more difficult it will be to correct this situation.
Who is making these changes?
The Minister of Finance is the trustee of the Public Service Superannuation Plan. The trustee
must ensure the plan is well funded so that it can pay pension benefits to all plan members, at a
cost that is affordable for the Nova Scotia taxpayer. The Public Service Superannuation Act will
be revised to make these changes.
—————————————————————————-
We need to move to a place where taxpayers have cost certainty. But retaining a defined benefit structure with benefits adjusted to fit the funding will deliver better value for plan participants.
The manner in which the government proposes to back away from honouring the “benefit promise of indexation” undermines the integrity of the government commitments to its’ workers and their pension scheme.
Key points:
1. INFORM – the annuitants must each be informed by government in great numerical detail of the very significant future financial impact of indexing changes.
2. EDUCATE – The following link provides some transparency as to the enormous importance of indexing – http://www.tbs-sct.gc.ca/hr-rh/bp-rasp/pensions/faq-eng.asp The table at para 2 shows the insidious and enormous cumulative impact of inflation on pensions not protected by indexing.
3. CALCULATE – Provide each annuitant calculations on the cost of de-indexing to their “numbers” For example , an assumption of 3% inflation, 30 years of pension duration and a pension start value of $50,000. The removal of indexing on a pension such as this will result in the loss of hundreds of thousands of dollars lifetime to such an annuitant. Repeat, loss of hundreds of thousands of dollars lifetime.
4. DEBATE – Is it fair to Fix the income of Pensioners via government’s retroactive de-indexing ? It makes those with their working lives behind them vulnerable to the relentless erosion of their standard of living.
5. INTEGRITY – I reiterate that the government must honour the indexing promises made to date regardless of cost.
6. FAIR FUTURE WARNING – Pension cost reduction is essential. A Warning Period is required – De-index from today forward and inform those affected that from this day onwards they will have to set aside more retirement savings during their remaining working life .
7. SOLUTION ? – End Defined Benefit pensions and switch to a Defined Contribution scheme in an orderly fashion, honouring all committments to date. Imagine the chaos if the government patially defaulted on their promise to pay bond holders, bridge loans , salaries, or road builders – De-indexing retroactively as it is being contemplated by the government is a partial default on real pension monies owed annuitants. Unacceptable.
There is some great dialogue going on here. I understand the complexity of a DB pension plan. Is there a triannnual acturial report that one could see? Let’s have a discussion with someone who has the details of the plan design and funding How and who makes decisions on the investments in the plan? A funding holiday,heh, there are provisions for a substantial surplus before a funding holiday needs occur. The inflation factor used in a DB plan can double the liability lets allocate inflation adjustments to surpluses and payout when the plan is doing well .
“….. We agree that all benefit promises to date must be honoured. But some of the future contributions must be allocated to deficit reduction…..”
Many present and future annuitants worked under the “benefit promise” of full indexation yet these individuals will not now receive that anti inflation benefit under changes to indexing rules.
I believe as you do that “promises to date” must be honoured. Thus, an annuitant who worked for 30 years under full indexation and 5 years under no indexing should get 30/35 of full indexing.
This “30/35” type of indexing calculation would deliver on all of the anti inflation benefits promised to date. Wiping out or modifying indexing rules in a retroactive manner is a failure to deliver on promised benefits.
Thanks Richard. The problem is that the benefit pronises have been much richer than the funding to support them. The minister has acknowledged this in his recent changes. It would be more honest with our public servants and fairer to taxpayers if we explicitly said that benefits will be adjusted to fit the finding.
What we are really witnessing here is that the general public is getting fed -up, but at the same time , the general public doesn’t really know how to fight back. Our jargon has caused to blame the “government ” or the “politicians” and in very general ways. We need to get more specific and make sure we name the names. The real missing link is the lack of transparency in NS at the Municipal and Provincial level of government. You don’t see “the numbers” for anything . Everything is basically “computerized” today and yet we see less . No matter who we elect, we need to put the pressure on such that it reaches to and helps reveal the bureaucrats that are really running the show . Who sits on these Pension Fund Boards ? Where’s their financials ? If they’re in the hole, who’s accountable??
Pension plans make promises now about retirement payments to be made later. The cost of those promises is higher if the plan allows retirement with unreduced benefits at younger ages. It is also higher if the plan provides annual increases in benefit to match inflation. The biggest pension plans in Nova Scotia are the Public Service Superannuation Plan for civil servants and the Nova Scotia Teachers Pension Plan.
Our civil servants put almost 10 % of payroll into the pension plan every year. This is matched by taxpayers. But the benefit promises are so generous that the value of those promises at the end of 2009 exceeded the assets by more than $1,500,000,000.
The Minister deserves credit for labeling the issue and taking steps to address it by increasing the retirement date for future employees and by reducing the amount of inflation indexing in existing pensions. But he did not go far enough, and he has caved in on a crucial point.
He should have gone farther on benefits by extending the early retirement date for some existing employees ( say those at least ten years from retirement ) and by providing for smaller inflationary increases to benefits. With these changes this plan could be brought to an adequate funding status without the need for additional contributions, and the plan’s benefits would still be far richer than those available to almost all other taxpayers.
He caved in on funding. The problem with the government’s proposed solution is that Nova Scotia taxpayers will now borrow an additional $536 million to close this gap. Furthermore, the government employees who will benefit from this pension plan aren’t being asked to contribute a single additional dollar. Previously, government employees were asked to match dollar for dollar contributions from the taxpayer. Is it any wonder Joan Jessome, the president of the Nova Scotia Government and General Employees Union (NSGEU), is so pleased about these pension plan changes? The government delivered more than a half a billion in new money, borrowed on behalf of Nova Scotia taxpayers, to her member pension plans without requiring any employee matching.
The authors of this plan will argue that the employees have given up more than taxpayers because the value of benefit reductions is about $1 billion. Taxpayers will argue that , at 10% of civil servants’ payroll ,they are already putting a lot of money into the plan—much more than goes into their own retirement savings.
It is hard to get perspective on a number as large as $536 million. It is:
1)More than half the amount of money ($880 million) that the province received from the offshore accord.
2)Equal to two and a half years worth of the increase in HST
3)About $30,000 for every active member of the plan.
And there is no guarantee that this is a one time payment. Instead a bad precedent has been set. If future investment performance is less than assumed (possible) or pensioners live longer than expected (probable) will the taxpayers be asked to write another huge cheque?
Questions for the Minister:
1)Will he undertake that any future surpluses in the plan will be used to repay taxpayers before any benefit improvements are made?
2)Will he promise that there will be no more bailouts, that from now on the benefits will be made to fit what can be purchased with the regular employee and taxpayer contributions ?
3)Will he avoid writing another huge cheque when sorting out the Teacher’s plan ?
4)Will he ensure that universities , school boards, municipalities , and health care organizations are liable only for the regular annual pension funding (ie no big additional payments) so that taxpayers do not take another major hit on those plans?
Nova Scotians are being asked to accept the difficult measures necessary to return to balanced budgets. They cannot accept those measures if government is going to continue exposing taxpayers to huge risks that are not necessary in order to provide excellent pension plans to public sector workers.
No matter what party is in we will not get the truth of the troubles facing NS in the near and extended future.
The people will pay and politicans will benefit from moving the debt to future generations. We need a process where we can hold politicans individually accountable. Party politics does not service the people well accountable politics will serves the people let us have the right to recall then just maybe they will be accountable to the people and not the party reelection process.
Many say confusion would reign, what we have now is hidden agenda’s and miss information being sold to the general public and no responsiblity for what is before us.
A new way must be found to govern and it must be responsible to the people on a daily basis.
Finance Minister Steele has in his budget acknowledged that the public sector pensions have serious problems. The change to inflation indexing is commendable and should significantly help the funding status . The change to the rule of 80 is directionally right but far too tepid in only applying to future hires. A better version would have included future accruals for existing employees.
Then there is this surprising statement:”We will also take advantage of historically low interest rates to refinance a portion of the unfunded liability, at considerable savings to taxpayers.” This is a odd. Lower interest rates cause the cost of future pensions to go up because returns on the money put aside are less. Apparently the heralded savings are achieved by borrowing $536,000,000 and assuming it will earn higher returns in the funds. Perhaps all Canadians could solve their pension funding problems this way?
There is more to this than meets the eye. Until now all funding of the Public Service Pension has been equally shared by employees and taxpayers. What has happened by this action is that taxpayers are now contributing $536,000,000 to the fund with no matching from employees . Perhaps this explains the rather benign reaction from NSGEU president Joan Jessome.
The government also offers joint trusteeship. This will be good if it means cost certainty for taxpayers . It will be awful if the joint trustees can make promises that the taxpayers have to guarantee.
Finally the changes are to apply to the MLA plans. Also good but when are we going to get some transparency ?
The budget as a whole acknowledges what everyone has known—that the NDP promise to balance the books without cutting costs and raising taxes was nonsense . Steele and Dexter are smart and they knew it when they said it. Apparently these smarts are to be applied to all manner of expenditures ( including the 60% that goes to hospitals, universities, school boards, and municipalities ) to achieve gigantic savings over the next three years . The goal is noble but one can be forgiven for skepticism—over $700,000,000 in the third year would certainly be quite an achievement—this in addition to the public sector wage restraint and pension savings .Reducing the civil service by 1,000 positions would achieve less than a quarter of it.In fact the $1,400,000,000 “projected deficit” was always a very high end estimate.
Taxpayers are being asked to contribute more. How and when that happens is immediate and clear. It would be nice to see the same clarity on the expenditure side.
There is a big difference between a public sector and a private sector pension fund, simply because of the way employees in the public sector stay as contributors for so long. I’m told the Teachers pension fund in NS has the best pension pay outs and benefits as compared to the NS public service and the nurses. Pensions have rules to follow and the members should be very involved at the Board level. The taxpayer should not be idle if there any sign the public service pension plan needs more money. I never heard about that “holiday” in contributions for the civil service in NS. And yes, you do have far more civil servants in Management than you ever had before; I think in Tourism there are 26 in Management pay scales for a total staff of maybe 44 .
There was an approximate one year contribution holiday about 10-12 years ago. Prior to that there was a repayment of contributions for a period of time. I know, I was there. I recall talk of a funding ratio of 108% at the time. If retained in the plan and properly managed (more on that below), what would that have done to the plan’s present status I wonder?
My comment/question regarding federal law was not in relation to tax law, but in relation to pension laws around funding levels for plans. Perhaps those are provincial laws? I do not know. But I do know that at the time of the contribution holiday, the raqtionale stated was that it was a legal requirement to reduce the overfunding.
Regarding plan management: one must question the wisdom of allowing plans to invest so heavily in the equity markets. My recollection is that such was not always the case. A more attentive and conservative approach seems preferable in the case of a pension plan. Again, I question the wisdom of the plan’s management and the trustee.
Regarding the comment about average incomes of PSSP members being above that of Nova Scotians: of course it is. They are employed, whereas not all Nova Scotians are. That is a disingenuous statement. The reality is that the vast majority of PSSP members are making annual incomes in the $35K-$70K range. They are not wealthy people. Compare that to those in the private sector who, by good work or good fortune, hit the jackpot. It is a totally different world. If you wish to move public sector pensions to a private sector model, be prepared to have to pay far more in salary for public sector workers.
The province regulated minimum funding levels, although regrettably not for its own plans.There are federal limits, recently relaxed, on overfunding.
The pension investment policy of the plan has been in line with pension plans across Canada. The deficits in Nova Scotia’s plans are typical .
PSSP members earn substantially more than average employed Nova Scotians,
It is unfortunate that much of the discussion is related to private sector vs. public sector, with several statements that public sector workers need to pay their fair share, etc. The truth is that until the recent market crash, the PSSA was well-funded. In fact, it was substantialy overfunded about 10 years ago and the managers and trustee (the Minister of Finance) at that time decided to give working members a refund and contribution holiday, while the province apparently pocketed their share with nary a word. Suddenly the plan is in dire shape? That is not the fault of the members. That is the fault of those who made those past decisions. The members had no say in any of it, and it is unfair to point at them now.
The fall in the markets over the last 2 years points out another troubling tendency about the PSSA: Those who are making the decisions tend to make them on a very short-term basis. So everyone knows that 2008 was a terrible year for the markets. Do we know what, say, 2013 will be like? No. So why are we responding to a single event with such dramatic measures? I understand that much of it is due to federal laws that require surpluses to be paid out and deficits to be covered (please correct me if I am wrong on this). If so, perhaps those laws need to be revisited.
One final point: there is constant comment here and elsewhere that the taxpayer should not be liable for public sector pensions. That is absurd. They are liable for all promises and commitments made by their government. It makes no difference whether it is a pension or an agreement to pay Bay Ferries $3 million not to sail in 2010. Government hired these workers and made them a promise. Those workers accepted, in most cases, far less in salary and opportunity for advancement than they would in the private sector. They traded that for some semblance of security and the promise of a pension upon retirement. You do not see many public sector workers taking home salaries of $300,000 or more plus bonus. It is simply a different arrangement than the private sector, and for some it is a more appealing one, while for others it is totally unacceptable. For the latter group, they leave and try their luck in the private sector. Do not try to equate the two groups, as they are fundamentally different. It is a matter of paying some now, or paying some later. In either case, you have to pay.
Keith thank you for your comments. Some clarifications:
1)There have never been withdrawals from the PSSP plan. There was a brief contribution holiday shared by members and the taxpayer. The amount involved was trivial compared to today’s deficit.
2)The plan was in trouble before the market tanked. Each year it continues to make promises that can not be sustained by present contribution rates.The proposed policy response would provide the members 100% of the benefit of any future market performance.
3)Federal tax rules are not impacting the present situation, nor would they apply in any “target benefit” environment.
4)We agree that all benefit promises to date must be honoured. But some of the future contributions must be allocated to deficit reduction,and benefit promises made from now forward must be sustainable with the remainder.
5)The average income for PSSP members is well above the average income of Nova Scotians.
The looming crisis is the greed and over spending of the baby boomer generation with no regard whatsoever how our welfare nanny state will survive after they rape everyone for every last cent to smooth their trip to the grave. What we need is… a revolution. Tea party anyone??
I believe this issue needs some attention in the next budget (and beyond). Urgency is an interesting choice of words… if it becomes a voting issue, I guess it’s urgent.
Greater attention needs to be placed on encouraging people to contribute to RSPs, especially for those, such as myself, who do not have a PP. Having said that, I do not currently contribute to an RSP and there are a few reasons:
1. Better personal financing skills would have likely helped me early in my career. Here’s an opportunity for schools and parents to equip students with real world knowldege around $.
2. I’m approaching my mid-career years and so retirement is now entering my radar screen. There was no urgency or rationale (in my mind) to plan ahead. Again, an opportunity to educate.
3. My wife and I continue to contribute thousands and thousands of dollars annually on student loan payments, 10-12 years after we graduated. Assisting students with interest-free loans, grant and bursary programs and so forth will free up money, ideally, to begin investing for the future.
I’d love to see some action in these areas, but it will not become a priority of gov’t if they are intending to balance the budget. I think we obsess a bit over balanced budgets from year to year. Broken promises are a part of the political landscape, lets face it. So, if the NDP doesn’t balance the budget this year, I won’t be appalled.
As long as they show fiscal responsibility and accountability over a period of years, that’s much more meaningful. Problem is, as we get closer to year 2-3-4, the desire of any sitting government to get re-elected clouds sound financial judgement. A bold government governs for the future.
Carol thank you for your comment.
Once money is in the plan Government does not get to use it for any purpose. What is more troubling is to have promises not backed up by money in the plan.Government contributions to the plan have exceeded those from teachers by about $600,000,000 but the plan is still substantially underfunded. You will note that the proposed solution does not involve reducing benefits for retirees nor the amount of future pension earned so far by those still active. It does mean that the future promises are brought into line with what the funding can provide. If we do not act now today’s young techers will have an even worse problem down the road.
As retired teachers we are very concerned about the unfunded liability of our pension plan. All we hear are rumours and many of our older members are afraid. The teachers’ plan money was used by the government during the time when interest rates were 18-20% and the plan was reimbursed very little, (less than 5%)
Yes, we are fortunate to have a pension but the possibility that current pensions might be reduced would be devastating to many retirees.
The government bought 40 million$ worth of land owned by Irvings and at the same time the company received a loan. University financing was granted ahead of schedule and the government are talking about raising taxes, not returning overpayment on pharmacare to seniors and the NS power explains that the fuel surplus of 22 million will be deleted from power bills but that a new charge of 23 milllion will be instituted in Jan. How does that help anyone?
Yes, transparency is required for MLA pensions and they are too easy to get them, teachers require age plus service to get a pension. Why do not MLAs?
The province should work towards balancing the budget as quickly as possible, perhaps, reduce the size of gov’t, reduce the number of HRM councillors, get rid of the amalgamations forced on the people of HRM.
This is a timely discussion. We might remember that defined benefit pension plans are in a sense deferred income funded in part by contributions of the employee and the employer. Deficits arise because of either poor management (insufficient contributions and/or investments) or poor economic performance in the country. Inequities may be peceived when one pensioner (or group of pensioners) has a smaller pension than another. However pensions are in some way linked to salary, which in turn is linked to performance in the work place, and to length of service so some people will always have “bigger” pensions than others. The “length of service” may be one place where MLA pensions differ from the norm. One blog poster commented on the difference between pension schemes, and indeed if all were the same there would be less discrepancy and perhaps less costs for some plans. Changing plans like the PSSA (of which I am a member) to be in line with “the norm” (if there were one) might be beneficial in reducing costs and future deficits. However we should also be aware that in our social system a good DB pension may reduce costs in other areas (OAS for example) and by reducing DB benefits those other costs may rise (increasing the burden on taxpayers.) Still, DB plans do need reform. DC plans may not be the answer as their failure to produce adequate incomes may increase the costs to other universal plans (taxpayers). Fairness in pension plans may means the development of the same rules for all with a common set of “benefits”, protection of private company funds from bankrupcy claims (lack of which throws many people on to the universal plans at tax payers’ expense). Common benefits would leave the “reward” of a good pension income to depend, albeit indirectly, on performance in the workplace (assuming salaries are linked to performance.) Current deficits are a reality which might be, in part, addressed by increased contributions, however in the long term may require redesign of the benefits to the “norm” as well as a change in the type of plan. Perhaps to a combination of present methods (DB and DC), to avoid failure of public and private pension plans (which results in the universal plans picking up the slack under our present social system.) No easy solution it appears, however leadership and action to preserve “deferred income” and to reduce tax payer risk is necessary.
As pointed out by Steve M, there is no question that these are tough issues. The first year of a majority government is the right time to address them. And the opposition parties can show their worth by supporting government when it takes difficult but well considered steps, rather than scoring cheap political points.
I am a NS PP member. I do not know what the provision when I retire will be, but I fully expect it to change between now and then.
In #2 when you ask if the plan should be supported by taxpayers, thats kind of loaded. As a public servant, everything I do at work is funded by the taxpayer. But Joe Six Pack isnt cutting me a personal check for this benefit. The taxpayer supports government, government has agreed to a pension with employees. It has agreed to many, many things I dont like, but as a citizen (and yes, I am a taxpayer too) I realize that I dont need to approve of every program or service, I never will. But I believe in a responsible government protecting its citizens.
#3, all governments should support balanced budgets. Unfortunately politics will never allow that.
As a potential party leader Bill, you must know this better than most. The current job of government parties is not constructive opposition anymore it is getting their party elected by criticizing and politicizing whenever possible. We can balance budgets by making tough decisions, not just decisions that wont cause too much backlash. A plan to improve healthcare will be portrayed as an attack on healthcare. Improvements to social assitance will be an attack on single moms and the poor. Its cynical, but I think its true.
#4 – Transparency should be part of every single government department and office. From the Premier to the clerks.
#5, I think that urgency is an enemy of real change, its a political tool. Did they act too quickly? Too slowly? Why were mistakes made? I think we need to breathe deep, do our homework, make the right decisions. The busses will still run on time.
#6, I dont know enough about the pension plan to comment on numbers. But I will say I have no issue paying more than I do now. I realize the value of this benefit to me and my family, I wish all NS’ers had a pension. I would like to pay my share for mine. I would like the employer to pay its share. Whatever those are determined to be.
At the end of the day, when things are tough, its easy to be angry at those that havent been hurt as much as you have. But Im just a guy with a job, a family, and a mortgage. Im not rolling around like Boss Hogg lighting cigars with hundred dollar bills, planning out what Im gonna do with all my pension $. From what I hear, it really isnt a huge income, but when that time comes I hope to have less bills to pay. I know any plan is better than no plan. But maybe we should be looking into why so many of our citizens are being left in the cold instead of blaming the people who are lucky enough to have something.
Topic: The Great Divide – Pensions & Benefits in Canada
There is a growing divide in this country between the Public and Private Sector.
84% of the public sector has a registered pension plan and represent about 20% of the workforce. 93% of these plans are Defined Benefit.
23% of the private sector has a registered pension plan and represent about 80% of the workforce. 62% of these plans are Defined Benefit.
70% of the workforce has no organized pension.
The public sector pensions are 50 to 70% funded by the general public, and shortfalls are 100% taxpayer funded. This years provincial budget shows a $10.1 Billion shortfall (Table 20) to be paid over 4 years…..
The politicians, the bureacrats, at all levels, are ignoring the obvious. There will be an uprising one day …. Taxpayers Against Government …if they don’t deal with this issue beginning now.
1. I do not have a defined benefit pension plan. However, having worked for 35+ years and contributed (usually the maximum allowable) every year to RRSP’s, I am still not financially set as I would be, had I been in a defined benefit plan. With recent market developments, I seem to be going one step forward, and one step back. I am not currently able to retire, whereas if I were a public servant at this age, I would be.
2. Deficits in public sector plans are a challenge. How did we get there in the first place? Was it purely a market driven situation, or is poor management a part of it? We do need to meet the pension commitment of public servants currently in the system or already retired. However, we could think about another form of pension, eg. defined contribution, for incoming new workers. However, the question is: How can we be assured of good management of any different type of plan than we have experienced in the past?
The way the question is worded makes it sound like we are funding the deficit of the workers, whereas I highly suspect the workers themselves had nothing to do with producing a deficit.
3. It is very important that government commit to balanced budgets. Not to say they can do it overnight, but we need a plan to get out of this hole we have dug for ourselves. Otherwise, how will we ever be able to continue our quality of life that we hold so dear, such as education, health care, safety and security?
4. Yes! Absolutely.
5. It is urgent that the government set out a plan to address these issues in the next budget. They need to be brave, be courageous. We need leadership on this now. Nova Scotians are ready.
6. I am not qualified to say 10% or 5% or 20%. That is best left up to the experts to determine a way out of the situation. If public input is required, we need to understand all aspects of the issue. This would likely be difficult to achieve – but perhaps laying out some scenarios might get us there.
Thank you for giving me an opportunity to provide this input.
Thank you Bob for your thoughtful comments . Some others have made similar observations, perhaps more cynically. The pensions issue is hard for people to understand , including politicians. It is much easier to ignore than to grapple with. Addressingn this question will be difficult and as you say will require corageous political leadership
It was stated in the article that I read in the paper that you are suggesting that the employee increase their contributions to 10% of their salary and the company match that amount to a total of 20%. It is my understanding at the moment that the tax department will only let you contribute a maxium of 18% percent. Can you elaborate on this for me.
Doug that would be true if it was an RRSP or defined contribution plan but the tax act allows greater contributions for defined benefit plans which this would continue to be.
Yes I am a member of a pension plan, our plan is fully funded after the 2008/2009 troubles.
I do have problems with deficits, I can’t run a deficit, in difficult times governments and people make tough decisions. While some people need assistance other budgets need to reflect difficult times. In most cases offsets, ie job freeze, budget cuts, delay of capital projects, every capital project has operating cost that should be part of a life cycle costs being government that is good to the people may not be good government.
As for MLA’s most of them this is the best job they have ever had and the best salary they have ever had, their plan should be no better than a civil servents pension plan.
Government will not respond because it does not get votes it only scares people who vote for the other party who promises things they can not provide without hugh debt.
The 10% rule sounds very reasonable. It would seen simple solutions are usually the way, not 2500 page documents.
When the economy is rosy the topic of pensions and return on investment is usually all about how this or that is doing so well. The element of risk tends to head into the background until things turn south; then pain can set in for those like me that rely solely on my own resources and abilities to prepare for retirement.
I don’t mind the taxpayers employees setting up their own pension schemes, that makes sense, but doing it in such a way that I (taxpayer) take all the risk and they none is objectionable. I know it’s not that simple, increased taxes apply to us all etc. but the “town” of Nova Scotia (900,000population) can’t afford a Cadillac zero risk plan such as the one our employees enjoy now.
Our town of Nova Scotia has Federal, Provincial, Municipal governments, school boards, commissions, regulatory bodies, an entire legal system etc. all for less than a million people. Maybe this was all necessary a hundred years ago when transport and communications speeds were measured in weeks or days. But today we simply can’t afford, or need, the duplicated layers and layers of government. Let’s remove obsolete functions, let’s make the most of Atlantic cooperation, let’s innovate processes and run an affordable, effective government.
Maybe we need a combination of the existing public pension plans with a combined format as well…..not sure of the solution….certainly a great topic to talk about…..its all over BNN these days. At the young ripe age of 38, and as one who has over contributed to his pension plan above the minimum requirements, maxed out on RRSP’s and jumped all over the TFSA last year, my concern is that for all my early years of penny pinching the government may in 10-20yrs out tax the frig out of these sources.
We have had well over 1,000 unique visitors to the site as of Jan 18th . In addition to the posted comments I have received several dozen emails, some providing general encouragement, some with substantial commentary, and some raising other topics for consideration.
In those comments there is a broad consensus that something must be done to bring the cost of these pension plans under control. Some advocate a transition to defined contribution plans. But these have some serious disadvantages including higher investment costs and the inability to pool longevity risks.
Next week the Pensions in Crisis posting will be updated to include a proposed approach to addressing the problem.
In the next couple of days there will be a new posting on a completely different topic.
Hi Bill and thanks for the opportunity to provide my comments on this issue.
I am a 41 year old, non-unionized employee of the Provincial Government and have been paying into the PSSP for about 15 years. I am eligible for retirement at 54.
The previous post have considered the fairness issue only from a public sector vs. private sector employee perspective. While this is important, we also need to consider this issue from a generational perspective. It seems to me that on a go forward basis this is a fairly easy problem to address – we move from a defined benefit to a defined contribution plan (I will ignore for a minute the political challenges to this which are obviously huge!). The problem is we would still be left with an historical deficit related to those folks who have already retired or who are close to retirement. I know it’s fashionable to beat-up on the Baby Boomers these days, but we are looking at a situation where a group of people have promised themselves certain benefits without making the required contributions to pay for those benefits. It seems to me that any ‘fair’ solution must include a reduction in benefits for current and soon to be pensioners.
Now when I mention this to my 50+ year old colleagues that get very defensive, but from a fairness perspective we cannot simply continue to burden the 20 something generation with these cost. From a practical perspective as well: this is the most mobile portion of the population and they won’t stay in the province or work in the civil service their entire adult lives just to subsidize someone else’s lifestyle.
At the end of the day, we are all entitled to the lifestyle we can afford – nothing more, nothing less.
Robert your contribution as a member of the provincial plans is particularly appreciated. You rightly point out that this is not a matter that only taxpayers should be worried about. Younger members of those plans ( who are also taxpayers ) should be even more anxious for the plans to be put on a responsible footing. Otherwise they will be asked to contribute to the underfunding of those who retired before them.
Bill, thanks for establishing this website. This is a hot topic.
I have been employed in the private sector for my entire career and currently participate in a Defined Contribution plan. This program is simply a supplement to my retirement planning, and would be in no way adequate on its own. As such, I have had to become very knowledgeable about our personal investments.
I have many friends who will benefit from public sector plans, but I do not feel, particularly in a province where we already pay some of the highest taxes in the country, that it is my responsibility to help fund deficits in such plans. That being said, I would certainly expect the government entity managing these funds to act in a fiscally responsible manner. I am also surprised that they do not have to manage these pensions within the same guidelines as managers of private company pensions (being required to immediately fund shortfalls, etc.).
Regardless of the type of plan in place for Canadians today, I am baffled by some of the ongoing discussions about pension reform. It seems inevitable that any type of reform will result in significant costs for all taxpayers. Quite honestly, I believe many citizens may benefit from a closer evaluation of the fees being charged by Investment firms. I recently learned that clients in the US pay a significantly lower average rate (MER) for their mutual funds than those of us here in Canada. I would also like to see much more transparency around the hidden costs of investing (sales fees, back and front end commissions, etc.) Finally, I believe there must be a far more open mode of “disclosure” in the investment industry, so that the average citizen is aware of how their money is invested and why. Until this industry aligns their goals of their own revenue growth with that of their clients, consumers will be at a disadvantage. From personal experience (I have been managing our investments for a few years now) this is not rocket science, and investors are paying far more than they should for their “advice”. I understand reform in this area will not help those who have not yet set aside any personal investments, but believe such scrutiny would certainly be of benefit to the segment that have been successful in doing so.
Mary thanks for this. The level of MER’s is a puzzle to me.The growing popularity of exchange traded funds reflects the beginnings of a consumer revolt.Bill
I am concerned at how many more people at much higher salaries,benefits and pension plans work in the public “service” now compared to just 60 years ago..while Nova Scotia’s population has remained relatively constant…Have we become that much harder to govern?…cheers
1.No, yes
2. Taxpayers must be protected against the costs engendered by profilgate politicians.
3.Yes
4.Yes
5.Yes
Given the increase in life expectancy and better health of the elderly a strategy of continuing employment but reduced responsibilty for retirees will be needed.
In response to your questions:
1) No, not currently a PP member; do have some limited pension monies from 2 previous employers. Through RRSP and other income, yes have adequate (perhaps) provision for retirement.
2) NO!!!
3) YES!!!
4) YES!!!
5) YES!!!
If the current NSGov’t does deal with the deficit, pension issues and limiting tax increases to pay for even higher public sector wages, we will start to see an erosion of middle-income workers and retired population. This will only increase the problems remaining Nova Scotians face.
I have worked hard my entire life. I have no interest in paying for first-class public sector or teacher pension plans. Yes we have all suffered in the recent financial crisis, but NOBODY is going to step-up and “top-up” my RRSP or Nobody is pension plan losses. I completely agree that if plans are in deficit – increasing contributions and/or a combination of de-indexing/reducing benefits is needed.
2. It would depend on the nature agreement between the sponsor and member on a plan by plan basis.
I have had some experience in the pension world, mainly from the investment management side. I think a large part of the problem with pension plans is defined benefit plans, where the sponsor promises a complex formula that takes an employee’s time, grade, contract etc etc and tries to promise x amount for y number of years. The problem is while the promise is firm, how much money needs to be put in is not clear. When I worked at the Ontario Teachers’ Pension Plan (the largest defined benefit in Canada with 10,000s of members) it was a huge job for auditors to determine if the fund was fully funded or not. A lot of assumptions needed to be made. The problem is it can never be definitely stated if a defined benefit plan is fully funded. The problem is too complex, all that can be given is a range of confidence. You could have a fund that is well funded, but loose 50% through poor investments (eg the hedge fund write downs in August 2006), or the union may push for richer benefits and the fund can go from well funded to under funded over night. It is a complex mix of investment returns, membership, longevity of members, funding deals, payout formulas etc So defined contribution is much better, you put in x amount per year, the fund invests it and you get some portion of the pot when you retire, there is no promised amount, it is what it is. Just like an RRSP. It can never be under-funded. So perhaps the answer is to transition these public defined benefit plans to a defined contribution plans, by encourage members to extract some locked in amount to be put into an RRSP or other defined contribution plan and wind the plans up.
A socially useful means to generate much needed revenue for Nova Scotia would be the wide introduction of speed and red light cameras throughout our Province .For many years ,these cameras have been widely used in Australia,the UK, France and Wahington,D.C.. The net and fully-documented results have been highly significant reductions in road deaths,injuries,social costs associated with road accidents and the generation of much needed money from those causing social destruction and much human suffering by their irresponsible and mindless driving behaviour. Many politicians fear unpopularity;they should fear bankruptcy more.
It’s nice to see that you’ve taken up this extremely important discussion. As a practising Certified Financial Planner and tax payer in Nova Scotia I am very worried about how the pension shortfall burden will be ‘shared’ going forward.
While attending the annual CIFP (Canadian Institute of Financial Planning) convention held in Halifax last June I had the opportunity to listen to the head of the NS Public Pension Plan speak. In the Q&A I asked him what the unfunded liability was in the plan and if the province was going to consider a DC plan (defined contribution or money purchase).
His first concern was whether any media were present – it was the day before the election. I then learned that the plans he managed were about $ 3 billion under funded and that there were no plans whatsoever to consider a money purchase or DC arrangement.
Any taxpayer should be very concerned about this issue. Who is going to make up the shortfall?
I have but one comment.
All government employees pension plans should be based on the same format.
This would include M.L.A. pensions, they are employees of the taxpayer and should be treated no different than the secretary or janitor. Government spending must be brought under control and pensions are a big part of it.
Equality for all.
Bill
Congratulations on your new site.
This indeed is a major issue for all Canadians. It is apparent for several reasons that these pensions are no longer sustainable.
It is sad that DB plans are dead in the private sector. They are a good way of providing for retirement income.
You have pointed out the reasons why they are not sustainable for the public sector as well.
1) Low contribution levels. The CD Howe estimated these pensions to cost over 30% of wages. This is why they are underfunded close to 30%.
2) Based on final salary. These pensions are based on the highest career earning of the public sector employees. Most private plans are a lot less generous and based on career average.
By governments are failing to deal with these issues today. They are prolonging and aggravating the pain that will be felt by taxpayers either by directly covering the shortfalls in these plans or indirectly by the future funding of government deficits.
Good Luck
Bill Tufts
Fair Pensions For All
Two inter-related issues. First – balanced budgets. Imagine the benefits, i.e. tax reductions and/or improved services NS could provide with $867.3 million – further health coverage for seniors, e.g. ambulance for those on GIS, an expensive vision care treatment as suggested by the Health Minister, transportation support, e.g. Yarmouth ferry service and on and on and on. Of course $867.3 million is not a random number, but the amount NS spent in 2008-2009 servicing its debt. We are burdened by the excesses of the past. We must bring this monster under control in order not to create even greater issues for our children and grandchildren. Since 2001-2002 the Canadian wage and salary index increased on average 3.1% per year. CPI increased 2.3% per year. NS revenue increased 6.5% per year, yet NS net program expenses increased 7.8% per year. There are a number of departments whose expenses increased > 20 % per year, including Police and Victim Services and the Public Service Commission. I can’t imagine any justification for increases of these levels in a province where population has been remained essentially flat over the same period. NS cannot afford this level of spending. Had expenses increased at the rate of revenue since 2001-2002, i.e. 6.5% – still over twice the wage and salary index and 2.75 times CPI, expense levels would be lower by more than the 2008-2009 deficit. I passionately believe generations should pay their own way, and never create or increase debt and debt servicing costs for those who follow. With respect to the pension issues pension costs need to be considered like any other expense of the province, and subject to the constraint of a balanced budget. Unless pension benefits, in lieu of salary, are required as a recruitment and/or retention tool I can think of no reason public sector employees should benefit from richer programs than those of the private sector. To the extent the benefits are greater the employees, not the taxpayers, should fund any shortfall. Tax dollars, i.e. the government’s cost, should fund reasonable pension benefits consistent with those provided by the private sector. Employee/participant contribution levels should then determine the level of ultimate benefits. If the participants are unprepared to fund the deficit, benefits should be rolled back, particularly where benefits are richer than those provided in the private sector. Transparency is required for MLA pensions, with separate accounting. Certainly the government should respond to these issues in its next budget. Regrettably I accept it may not be realistic to eliminate the entire deficit in the 2010-2011 budget but I strongly disagree with the federal government’s four or five-year timeframe. The NS deficit needs to be eliminated within two years. Thank you for the opportunity to comment.
Thanks Norm. Your note usefully points out that the prior government needed to drastically change its ways to avoid deficits even without a financial crisis. The current government can not claim to have addressed the issue without addressing the pension question.
I’m a 26-year-old private sector employee, and have belonged to a defined-contribution plan through my employer for several years now. While it’s currently ineffective for me to speculate where the markets will leave my pension plan savings at retirement, I intend to supplement that plan with a healthy amount of personal and RRSP savings through my working life. As such, I resent even the suggestion that I should be on the hook as a taxpayer to reconcile underfunding in public sector DB programs. More of the risk associated with these plans needs to be downloaded to the public sector worker in the form of increased personal contributions, and a gradual move to a public sector DC scheme (as many responsible, realistic private sector employers have already committed to) by closing DB membership to new employees.
Government needs to make examination of such changes a priority at budget time, primarily to open a dialogue on the state of things with Nova Scotians, many of whom remain largely unaware of the crisis before us. Certainly, such a discussion needs to take place before any contemplation of tax increases. The current government could take a symbolic step forward with consultation on some reformation of the MLA pension scheme going forward, and it would dovetail nicely with the very public overtures made over the summer and fall toward tightening an array of MLA benefits.
No sensible person privy to the information at our disposal can expect these plans to simply “stay the course.”
Thanks for your comment. The two things we need are transparency and cost certainty. The MLA pension plan would be a great place to start for improving transparency. As for cost certainty , moving to DC is one of a number of ways of doing so , perhaps not the best. Bill
Thanks for posing the question. This is a great forum to discuss and put focus on individual topics.
I don’t belong to a pension plan, but I used to work as a financial consultant with a large national investment management firm that handled pension plans and RRSPs for group benefits programs for private and public organizations of all sizes.
What I learned from that experience is that retirement planning is an individual responsibility. Pension payments from a defined benefits plan (by definition) don’t reflect the true performance of a retiree’s investments during their years of work. So, it’s not a surprise that when pooled pension funds take a hit, companies with DBs sink (as they are forced to artificially inflate the payout to meet the promised benefit levels).
As we have seen recently, when those companies are significant in size, the government steps in with bail outs. And therein lays the problem.
Now, different people may feel differently about bail outs depending on which side of the cheque they are. However, there is a certain legitimacy to the argument that tax payers should not collectively be responsible for ‘chipping in’ to ensure that people on DB plans maintain their promised standard of post-retirement lifestyle.
The main justification for this objection is that the same gesture would not apply to people who are not under a DB plan, or who don’t belong to pension plans whatsoever.
As a person who doesn’t belong to a pension plan, if my retirement funds take a hit in the market will tax payers jump to my rescue? Should they?
All I’m saying is that it feels unjust to be asked (as a tax payer) to subsidize someone’s retirement if I myself don’t have access to the same privilege, even though my retirement funds experienced the same crisis.
I guess that’s the long way of saying that I don’t believe that deficits in public (or private) sector plans should be shared between taxpayers. They should be assumed by the participant just like they are assumed by other citizens who are not under pension plans.
Thanks for your comment. I believe your sentiment will be shared by many . But it will not always be true that civil servants and teachers have the same employment circumstances as others .
This particular issue comes to a head because of historic underfunding plus the very adverse experience in 2008 plus the sheer size of the amounts .
More and more private sector companies are moving to a defined contribution pension plan from a defined benefits pension plan in recognition of the unsustainability of these plans. It is not reasonable to expect the average taxpayer who, as you point out,either does not belong to a pension plan or has limited RRSPs to fund these unsustainable public pension plans that are fully indexed. Governments need to move to defined contributions plans for any new hires. A recent CRA survey of workers in Atlantic Canada indicated that the public sector has been largely unaffected by the recession in the region. For example, 75% of public sector workers received a wage increase in 2009. This compares with only 44% of private sector workers and only 32% of not-for-profit workers. As far as I know, the only job lost in the region has been from the public sector.
I always thought that pension funds basically have two parties who which have legal obligations to ensure the fund is “funded”. First the employer, Second the employee. If a fund happens to have a surplus, the employer has first rights to decrease their payment to the fund. SO , when a fund has a shortfall,who of the two parties has the legal obligation to make sure the fund returns to balance? If the taxpayers of NS are now on the hook here , then we need to find a way to tell them, tell them the dollars involved and also tell them the WHO is running the sinking ship. !!!!
PS | April 15, 2010 |
Clearly the tax payers should not be asked to foot the shortfall! The plans need to be brought back in balance by looking at contributions and adjusting benefits! All of us in the private sector do not have the luxury of dipping into the public purse and nor should anyone else for that matter!
Regards.
Hector Jacques | April 14, 2010 |
Here is the minsters explanation of his decision (from the Nova Scotia Pension Agence Website):
General Details
What is happening to the Public Service Superannuation Plan?
Changes are being made to Nova Scotia’s Public Service Superannuation Plan (PSSP) to
improve its long term health and to protect basic pension benefits for all members. The
changes, most of which are effective April 6, 2010, are designed to ensure the plan is
approximately 100% funded at January 1, 2011.
Why are the changes necessary?
The PSSP has been underfunded for some time. This means the plan doesn’t have enough
assets to cover all of its long-term pension obligations.
Rising pension costs are related to three things: the structure of pension benefits, the fact that a
larger number of employees are retiring or approaching retirement age, and the recent turmoil in
financial markets that has affected the value of the plan’s assets.
The PSSP must be properly funded to ensure that benefits are available for retirees. If these
changes are not implemented, the plan’s funding levels will continue to decline. The longer we
wait, the more difficult it will be to correct this situation.
Who is making these changes?
The Minister of Finance is the trustee of the Public Service Superannuation Plan. The trustee
must ensure the plan is well funded so that it can pay pension benefits to all plan members, at a
cost that is affordable for the Nova Scotia taxpayer. The Public Service Superannuation Act will
be revised to make these changes.
—————————————————————————-
We need to move to a place where taxpayers have cost certainty. But retaining a defined benefit structure with benefits adjusted to fit the funding will deliver better value for plan participants.
Bill
Bill | April 14, 2010 |
Bob and Bill:
The manner in which the government proposes to back away from honouring the “benefit promise of indexation” undermines the integrity of the government commitments to its’ workers and their pension scheme.
Key points:
1. INFORM – the annuitants must each be informed by government in great numerical detail of the very significant future financial impact of indexing changes.
2. EDUCATE – The following link provides some transparency as to the enormous importance of indexing – http://www.tbs-sct.gc.ca/hr-rh/bp-rasp/pensions/faq-eng.asp The table at para 2 shows the insidious and enormous cumulative impact of inflation on pensions not protected by indexing.
3. CALCULATE – Provide each annuitant calculations on the cost of de-indexing to their “numbers” For example , an assumption of 3% inflation, 30 years of pension duration and a pension start value of $50,000. The removal of indexing on a pension such as this will result in the loss of hundreds of thousands of dollars lifetime to such an annuitant. Repeat, loss of hundreds of thousands of dollars lifetime.
4. DEBATE – Is it fair to Fix the income of Pensioners via government’s retroactive de-indexing ? It makes those with their working lives behind them vulnerable to the relentless erosion of their standard of living.
5. INTEGRITY – I reiterate that the government must honour the indexing promises made to date regardless of cost.
6. FAIR FUTURE WARNING – Pension cost reduction is essential. A Warning Period is required – De-index from today forward and inform those affected that from this day onwards they will have to set aside more retirement savings during their remaining working life .
7. SOLUTION ? – End Defined Benefit pensions and switch to a Defined Contribution scheme in an orderly fashion, honouring all committments to date. Imagine the chaos if the government patially defaulted on their promise to pay bond holders, bridge loans , salaries, or road builders – De-indexing retroactively as it is being contemplated by the government is a partial default on real pension monies owed annuitants. Unacceptable.
Thoughts ?
RBRB
Richard | April 14, 2010 |
There is some great dialogue going on here. I understand the complexity of a DB pension plan. Is there a triannnual acturial report that one could see? Let’s have a discussion with someone who has the details of the plan design and funding How and who makes decisions on the investments in the plan? A funding holiday,heh, there are provisions for a substantial surplus before a funding holiday needs occur. The inflation factor used in a DB plan can double the liability lets allocate inflation adjustments to surpluses and payout when the plan is doing well .
Bob | April 14, 2010 |
Bob, much of the information you mention is available on the Nova Scptia Pension Agency website.
Bill
Bill | April 14, 2010 |
Bill:
February 16, 2010 at 12:47 you wrote
“….. We agree that all benefit promises to date must be honoured. But some of the future contributions must be allocated to deficit reduction…..”
Many present and future annuitants worked under the “benefit promise” of full indexation yet these individuals will not now receive that anti inflation benefit under changes to indexing rules.
I believe as you do that “promises to date” must be honoured. Thus, an annuitant who worked for 30 years under full indexation and 5 years under no indexing should get 30/35 of full indexing.
This “30/35” type of indexing calculation would deliver on all of the anti inflation benefits promised to date. Wiping out or modifying indexing rules in a retroactive manner is a failure to deliver on promised benefits.
Thoughts ?
RBRB
Richard | April 13, 2010 |
Thanks Richard. The problem is that the benefit pronises have been much richer than the funding to support them. The minister has acknowledged this in his recent changes. It would be more honest with our public servants and fairer to taxpayers if we explicitly said that benefits will be adjusted to fit the finding.
Bill | April 14, 2010 |
What we are really witnessing here is that the general public is getting fed -up, but at the same time , the general public doesn’t really know how to fight back. Our jargon has caused to blame the “government ” or the “politicians” and in very general ways. We need to get more specific and make sure we name the names. The real missing link is the lack of transparency in NS at the Municipal and Provincial level of government. You don’t see “the numbers” for anything . Everything is basically “computerized” today and yet we see less . No matter who we elect, we need to put the pressure on such that it reaches to and helps reveal the bureaucrats that are really running the show . Who sits on these Pension Fund Boards ? Where’s their financials ? If they’re in the hole, who’s accountable??
PS | April 9, 2010 |
Pension plans make promises now about retirement payments to be made later. The cost of those promises is higher if the plan allows retirement with unreduced benefits at younger ages. It is also higher if the plan provides annual increases in benefit to match inflation. The biggest pension plans in Nova Scotia are the Public Service Superannuation Plan for civil servants and the Nova Scotia Teachers Pension Plan.
Our civil servants put almost 10 % of payroll into the pension plan every year. This is matched by taxpayers. But the benefit promises are so generous that the value of those promises at the end of 2009 exceeded the assets by more than $1,500,000,000.
The Minister deserves credit for labeling the issue and taking steps to address it by increasing the retirement date for future employees and by reducing the amount of inflation indexing in existing pensions. But he did not go far enough, and he has caved in on a crucial point.
He should have gone farther on benefits by extending the early retirement date for some existing employees ( say those at least ten years from retirement ) and by providing for smaller inflationary increases to benefits. With these changes this plan could be brought to an adequate funding status without the need for additional contributions, and the plan’s benefits would still be far richer than those available to almost all other taxpayers.
He caved in on funding. The problem with the government’s proposed solution is that Nova Scotia taxpayers will now borrow an additional $536 million to close this gap. Furthermore, the government employees who will benefit from this pension plan aren’t being asked to contribute a single additional dollar. Previously, government employees were asked to match dollar for dollar contributions from the taxpayer. Is it any wonder Joan Jessome, the president of the Nova Scotia Government and General Employees Union (NSGEU), is so pleased about these pension plan changes? The government delivered more than a half a billion in new money, borrowed on behalf of Nova Scotia taxpayers, to her member pension plans without requiring any employee matching.
The authors of this plan will argue that the employees have given up more than taxpayers because the value of benefit reductions is about $1 billion. Taxpayers will argue that , at 10% of civil servants’ payroll ,they are already putting a lot of money into the plan—much more than goes into their own retirement savings.
It is hard to get perspective on a number as large as $536 million. It is:
1)More than half the amount of money ($880 million) that the province received from the offshore accord.
2)Equal to two and a half years worth of the increase in HST
3)About $30,000 for every active member of the plan.
And there is no guarantee that this is a one time payment. Instead a bad precedent has been set. If future investment performance is less than assumed (possible) or pensioners live longer than expected (probable) will the taxpayers be asked to write another huge cheque?
Questions for the Minister:
1)Will he undertake that any future surpluses in the plan will be used to repay taxpayers before any benefit improvements are made?
2)Will he promise that there will be no more bailouts, that from now on the benefits will be made to fit what can be purchased with the regular employee and taxpayer contributions ?
3)Will he avoid writing another huge cheque when sorting out the Teacher’s plan ?
4)Will he ensure that universities , school boards, municipalities , and health care organizations are liable only for the regular annual pension funding (ie no big additional payments) so that taxpayers do not take another major hit on those plans?
Nova Scotians are being asked to accept the difficult measures necessary to return to balanced budgets. They cannot accept those measures if government is going to continue exposing taxpayers to huge risks that are not necessary in order to provide excellent pension plans to public sector workers.
Bill
Bill | April 11, 2010 |
No matter what party is in we will not get the truth of the troubles facing NS in the near and extended future.
The people will pay and politicans will benefit from moving the debt to future generations. We need a process where we can hold politicans individually accountable. Party politics does not service the people well accountable politics will serves the people let us have the right to recall then just maybe they will be accountable to the people and not the party reelection process.
Many say confusion would reign, what we have now is hidden agenda’s and miss information being sold to the general public and no responsiblity for what is before us.
A new way must be found to govern and it must be responsible to the people on a daily basis.
Brian Knight | April 7, 2010 |
Finance Minister Steele has in his budget acknowledged that the public sector pensions have serious problems. The change to inflation indexing is commendable and should significantly help the funding status . The change to the rule of 80 is directionally right but far too tepid in only applying to future hires. A better version would have included future accruals for existing employees.
Then there is this surprising statement:”We will also take advantage of historically low interest rates to refinance a portion of the unfunded liability, at considerable savings to taxpayers.” This is a odd. Lower interest rates cause the cost of future pensions to go up because returns on the money put aside are less. Apparently the heralded savings are achieved by borrowing $536,000,000 and assuming it will earn higher returns in the funds. Perhaps all Canadians could solve their pension funding problems this way?
There is more to this than meets the eye. Until now all funding of the Public Service Pension has been equally shared by employees and taxpayers. What has happened by this action is that taxpayers are now contributing $536,000,000 to the fund with no matching from employees . Perhaps this explains the rather benign reaction from NSGEU president Joan Jessome.
The government also offers joint trusteeship. This will be good if it means cost certainty for taxpayers . It will be awful if the joint trustees can make promises that the taxpayers have to guarantee.
Finally the changes are to apply to the MLA plans. Also good but when are we going to get some transparency ?
The budget as a whole acknowledges what everyone has known—that the NDP promise to balance the books without cutting costs and raising taxes was nonsense . Steele and Dexter are smart and they knew it when they said it. Apparently these smarts are to be applied to all manner of expenditures ( including the 60% that goes to hospitals, universities, school boards, and municipalities ) to achieve gigantic savings over the next three years . The goal is noble but one can be forgiven for skepticism—over $700,000,000 in the third year would certainly be quite an achievement—this in addition to the public sector wage restraint and pension savings .Reducing the civil service by 1,000 positions would achieve less than a quarter of it.In fact the $1,400,000,000 “projected deficit” was always a very high end estimate.
Taxpayers are being asked to contribute more. How and when that happens is immediate and clear. It would be nice to see the same clarity on the expenditure side.
Bill | April 6, 2010 |
There is a big difference between a public sector and a private sector pension fund, simply because of the way employees in the public sector stay as contributors for so long. I’m told the Teachers pension fund in NS has the best pension pay outs and benefits as compared to the NS public service and the nurses. Pensions have rules to follow and the members should be very involved at the Board level. The taxpayer should not be idle if there any sign the public service pension plan needs more money. I never heard about that “holiday” in contributions for the civil service in NS. And yes, you do have far more civil servants in Management than you ever had before; I think in Tourism there are 26 in Management pay scales for a total staff of maybe 44 .
PS | February 23, 2010 |
Bill, some points on your response:
There was an approximate one year contribution holiday about 10-12 years ago. Prior to that there was a repayment of contributions for a period of time. I know, I was there. I recall talk of a funding ratio of 108% at the time. If retained in the plan and properly managed (more on that below), what would that have done to the plan’s present status I wonder?
My comment/question regarding federal law was not in relation to tax law, but in relation to pension laws around funding levels for plans. Perhaps those are provincial laws? I do not know. But I do know that at the time of the contribution holiday, the raqtionale stated was that it was a legal requirement to reduce the overfunding.
Regarding plan management: one must question the wisdom of allowing plans to invest so heavily in the equity markets. My recollection is that such was not always the case. A more attentive and conservative approach seems preferable in the case of a pension plan. Again, I question the wisdom of the plan’s management and the trustee.
Regarding the comment about average incomes of PSSP members being above that of Nova Scotians: of course it is. They are employed, whereas not all Nova Scotians are. That is a disingenuous statement. The reality is that the vast majority of PSSP members are making annual incomes in the $35K-$70K range. They are not wealthy people. Compare that to those in the private sector who, by good work or good fortune, hit the jackpot. It is a totally different world. If you wish to move public sector pensions to a private sector model, be prepared to have to pay far more in salary for public sector workers.
Keith P | February 16, 2010 |
The province regulated minimum funding levels, although regrettably not for its own plans.There are federal limits, recently relaxed, on overfunding.
The pension investment policy of the plan has been in line with pension plans across Canada. The deficits in Nova Scotia’s plans are typical .
PSSP members earn substantially more than average employed Nova Scotians,
Bill
Bill | February 16, 2010 |
It is unfortunate that much of the discussion is related to private sector vs. public sector, with several statements that public sector workers need to pay their fair share, etc. The truth is that until the recent market crash, the PSSA was well-funded. In fact, it was substantialy overfunded about 10 years ago and the managers and trustee (the Minister of Finance) at that time decided to give working members a refund and contribution holiday, while the province apparently pocketed their share with nary a word. Suddenly the plan is in dire shape? That is not the fault of the members. That is the fault of those who made those past decisions. The members had no say in any of it, and it is unfair to point at them now.
The fall in the markets over the last 2 years points out another troubling tendency about the PSSA: Those who are making the decisions tend to make them on a very short-term basis. So everyone knows that 2008 was a terrible year for the markets. Do we know what, say, 2013 will be like? No. So why are we responding to a single event with such dramatic measures? I understand that much of it is due to federal laws that require surpluses to be paid out and deficits to be covered (please correct me if I am wrong on this). If so, perhaps those laws need to be revisited.
One final point: there is constant comment here and elsewhere that the taxpayer should not be liable for public sector pensions. That is absurd. They are liable for all promises and commitments made by their government. It makes no difference whether it is a pension or an agreement to pay Bay Ferries $3 million not to sail in 2010. Government hired these workers and made them a promise. Those workers accepted, in most cases, far less in salary and opportunity for advancement than they would in the private sector. They traded that for some semblance of security and the promise of a pension upon retirement. You do not see many public sector workers taking home salaries of $300,000 or more plus bonus. It is simply a different arrangement than the private sector, and for some it is a more appealing one, while for others it is totally unacceptable. For the latter group, they leave and try their luck in the private sector. Do not try to equate the two groups, as they are fundamentally different. It is a matter of paying some now, or paying some later. In either case, you have to pay.
Keith P | February 16, 2010 |
Keith thank you for your comments. Some clarifications:
1)There have never been withdrawals from the PSSP plan. There was a brief contribution holiday shared by members and the taxpayer. The amount involved was trivial compared to today’s deficit.
2)The plan was in trouble before the market tanked. Each year it continues to make promises that can not be sustained by present contribution rates.The proposed policy response would provide the members 100% of the benefit of any future market performance.
3)Federal tax rules are not impacting the present situation, nor would they apply in any “target benefit” environment.
4)We agree that all benefit promises to date must be honoured. But some of the future contributions must be allocated to deficit reduction,and benefit promises made from now forward must be sustainable with the remainder.
5)The average income for PSSP members is well above the average income of Nova Scotians.
Bill | February 16, 2010 |
The looming crisis is the greed and over spending of the baby boomer generation with no regard whatsoever how our welfare nanny state will survive after they rape everyone for every last cent to smooth their trip to the grave. What we need is… a revolution. Tea party anyone??
Mike Murphy | February 15, 2010 |
I believe this issue needs some attention in the next budget (and beyond). Urgency is an interesting choice of words… if it becomes a voting issue, I guess it’s urgent.
Greater attention needs to be placed on encouraging people to contribute to RSPs, especially for those, such as myself, who do not have a PP. Having said that, I do not currently contribute to an RSP and there are a few reasons:
1. Better personal financing skills would have likely helped me early in my career. Here’s an opportunity for schools and parents to equip students with real world knowldege around $.
2. I’m approaching my mid-career years and so retirement is now entering my radar screen. There was no urgency or rationale (in my mind) to plan ahead. Again, an opportunity to educate.
3. My wife and I continue to contribute thousands and thousands of dollars annually on student loan payments, 10-12 years after we graduated. Assisting students with interest-free loans, grant and bursary programs and so forth will free up money, ideally, to begin investing for the future.
I’d love to see some action in these areas, but it will not become a priority of gov’t if they are intending to balance the budget. I think we obsess a bit over balanced budgets from year to year. Broken promises are a part of the political landscape, lets face it. So, if the NDP doesn’t balance the budget this year, I won’t be appalled.
As long as they show fiscal responsibility and accountability over a period of years, that’s much more meaningful. Problem is, as we get closer to year 2-3-4, the desire of any sitting government to get re-elected clouds sound financial judgement. A bold government governs for the future.
Peter M | February 15, 2010 |
Carol thank you for your comment.
Once money is in the plan Government does not get to use it for any purpose. What is more troubling is to have promises not backed up by money in the plan.Government contributions to the plan have exceeded those from teachers by about $600,000,000 but the plan is still substantially underfunded. You will note that the proposed solution does not involve reducing benefits for retirees nor the amount of future pension earned so far by those still active. It does mean that the future promises are brought into line with what the funding can provide. If we do not act now today’s young techers will have an even worse problem down the road.
Bill
Bill | February 8, 2010 |
As retired teachers we are very concerned about the unfunded liability of our pension plan. All we hear are rumours and many of our older members are afraid. The teachers’ plan money was used by the government during the time when interest rates were 18-20% and the plan was reimbursed very little, (less than 5%)
Yes, we are fortunate to have a pension but the possibility that current pensions might be reduced would be devastating to many retirees.
The government bought 40 million$ worth of land owned by Irvings and at the same time the company received a loan. University financing was granted ahead of schedule and the government are talking about raising taxes, not returning overpayment on pharmacare to seniors and the NS power explains that the fuel surplus of 22 million will be deleted from power bills but that a new charge of 23 milllion will be instituted in Jan. How does that help anyone?
Yes, transparency is required for MLA pensions and they are too easy to get them, teachers require age plus service to get a pension. Why do not MLAs?
The province should work towards balancing the budget as quickly as possible, perhaps, reduce the size of gov’t, reduce the number of HRM councillors, get rid of the amalgamations forced on the people of HRM.
Carol MacLean | February 8, 2010 |
This is a timely discussion. We might remember that defined benefit pension plans are in a sense deferred income funded in part by contributions of the employee and the employer. Deficits arise because of either poor management (insufficient contributions and/or investments) or poor economic performance in the country. Inequities may be peceived when one pensioner (or group of pensioners) has a smaller pension than another. However pensions are in some way linked to salary, which in turn is linked to performance in the work place, and to length of service so some people will always have “bigger” pensions than others. The “length of service” may be one place where MLA pensions differ from the norm. One blog poster commented on the difference between pension schemes, and indeed if all were the same there would be less discrepancy and perhaps less costs for some plans. Changing plans like the PSSA (of which I am a member) to be in line with “the norm” (if there were one) might be beneficial in reducing costs and future deficits. However we should also be aware that in our social system a good DB pension may reduce costs in other areas (OAS for example) and by reducing DB benefits those other costs may rise (increasing the burden on taxpayers.) Still, DB plans do need reform. DC plans may not be the answer as their failure to produce adequate incomes may increase the costs to other universal plans (taxpayers). Fairness in pension plans may means the development of the same rules for all with a common set of “benefits”, protection of private company funds from bankrupcy claims (lack of which throws many people on to the universal plans at tax payers’ expense). Common benefits would leave the “reward” of a good pension income to depend, albeit indirectly, on performance in the workplace (assuming salaries are linked to performance.) Current deficits are a reality which might be, in part, addressed by increased contributions, however in the long term may require redesign of the benefits to the “norm” as well as a change in the type of plan. Perhaps to a combination of present methods (DB and DC), to avoid failure of public and private pension plans (which results in the universal plans picking up the slack under our present social system.) No easy solution it appears, however leadership and action to preserve “deferred income” and to reduce tax payer risk is necessary.
Bill Robrtson | January 31, 2010 |
Thank you for your thoughtful comment, and recognition as a plan member of the broader context.
Bill
Bill | January 31, 2010 |
As pointed out by Steve M, there is no question that these are tough issues. The first year of a majority government is the right time to address them. And the opposition parties can show their worth by supporting government when it takes difficult but well considered steps, rather than scoring cheap political points.
Bill
Bill | January 27, 2010 |
MJ, I agree that further delay will only make the problem worse, and therefor increase the likelihood of an irrational taxpayer revolt.
Bill | January 27, 2010 |
I am a NS PP member. I do not know what the provision when I retire will be, but I fully expect it to change between now and then.
In #2 when you ask if the plan should be supported by taxpayers, thats kind of loaded. As a public servant, everything I do at work is funded by the taxpayer. But Joe Six Pack isnt cutting me a personal check for this benefit. The taxpayer supports government, government has agreed to a pension with employees. It has agreed to many, many things I dont like, but as a citizen (and yes, I am a taxpayer too) I realize that I dont need to approve of every program or service, I never will. But I believe in a responsible government protecting its citizens.
#3, all governments should support balanced budgets. Unfortunately politics will never allow that.
As a potential party leader Bill, you must know this better than most. The current job of government parties is not constructive opposition anymore it is getting their party elected by criticizing and politicizing whenever possible. We can balance budgets by making tough decisions, not just decisions that wont cause too much backlash. A plan to improve healthcare will be portrayed as an attack on healthcare. Improvements to social assitance will be an attack on single moms and the poor. Its cynical, but I think its true.
#4 – Transparency should be part of every single government department and office. From the Premier to the clerks.
#5, I think that urgency is an enemy of real change, its a political tool. Did they act too quickly? Too slowly? Why were mistakes made? I think we need to breathe deep, do our homework, make the right decisions. The busses will still run on time.
#6, I dont know enough about the pension plan to comment on numbers. But I will say I have no issue paying more than I do now. I realize the value of this benefit to me and my family, I wish all NS’ers had a pension. I would like to pay my share for mine. I would like the employer to pay its share. Whatever those are determined to be.
At the end of the day, when things are tough, its easy to be angry at those that havent been hurt as much as you have. But Im just a guy with a job, a family, and a mortgage. Im not rolling around like Boss Hogg lighting cigars with hundred dollar bills, planning out what Im gonna do with all my pension $. From what I hear, it really isnt a huge income, but when that time comes I hope to have less bills to pay. I know any plan is better than no plan. But maybe we should be looking into why so many of our citizens are being left in the cold instead of blaming the people who are lucky enough to have something.
Steve M | January 27, 2010 |
Topic: The Great Divide – Pensions & Benefits in Canada
There is a growing divide in this country between the Public and Private Sector.
84% of the public sector has a registered pension plan and represent about 20% of the workforce. 93% of these plans are Defined Benefit.
23% of the private sector has a registered pension plan and represent about 80% of the workforce. 62% of these plans are Defined Benefit.
70% of the workforce has no organized pension.
The public sector pensions are 50 to 70% funded by the general public, and shortfalls are 100% taxpayer funded. This years provincial budget shows a $10.1 Billion shortfall (Table 20) to be paid over 4 years…..
http://www.tvo.org/cfmx/tvoorg/tvo/index.cfm?page_id=400&action=viewthread&forum_Thread_id=9181&forum_id=121
The politicians, the bureacrats, at all levels, are ignoring the obvious. There will be an uprising one day …. Taxpayers Against Government …if they don’t deal with this issue beginning now.
MJ | January 27, 2010 |
1. I do not have a defined benefit pension plan. However, having worked for 35+ years and contributed (usually the maximum allowable) every year to RRSP’s, I am still not financially set as I would be, had I been in a defined benefit plan. With recent market developments, I seem to be going one step forward, and one step back. I am not currently able to retire, whereas if I were a public servant at this age, I would be.
2. Deficits in public sector plans are a challenge. How did we get there in the first place? Was it purely a market driven situation, or is poor management a part of it? We do need to meet the pension commitment of public servants currently in the system or already retired. However, we could think about another form of pension, eg. defined contribution, for incoming new workers. However, the question is: How can we be assured of good management of any different type of plan than we have experienced in the past?
The way the question is worded makes it sound like we are funding the deficit of the workers, whereas I highly suspect the workers themselves had nothing to do with producing a deficit.
3. It is very important that government commit to balanced budgets. Not to say they can do it overnight, but we need a plan to get out of this hole we have dug for ourselves. Otherwise, how will we ever be able to continue our quality of life that we hold so dear, such as education, health care, safety and security?
4. Yes! Absolutely.
5. It is urgent that the government set out a plan to address these issues in the next budget. They need to be brave, be courageous. We need leadership on this now. Nova Scotians are ready.
6. I am not qualified to say 10% or 5% or 20%. That is best left up to the experts to determine a way out of the situation. If public input is required, we need to understand all aspects of the issue. This would likely be difficult to achieve – but perhaps laying out some scenarios might get us there.
Thank you for giving me an opportunity to provide this input.
Bob | January 27, 2010 |
Thank you Bob for your thoughtful comments . Some others have made similar observations, perhaps more cynically. The pensions issue is hard for people to understand , including politicians. It is much easier to ignore than to grapple with. Addressingn this question will be difficult and as you say will require corageous political leadership
Bill
Bill | January 27, 2010 |
It was stated in the article that I read in the paper that you are suggesting that the employee increase their contributions to 10% of their salary and the company match that amount to a total of 20%. It is my understanding at the moment that the tax department will only let you contribute a maxium of 18% percent. Can you elaborate on this for me.
Thanks
Doug
Doug McNutt | January 27, 2010 |
Doug that would be true if it was an RRSP or defined contribution plan but the tax act allows greater contributions for defined benefit plans which this would continue to be.
Bill
Bill | January 27, 2010 |
Yes I am a member of a pension plan, our plan is fully funded after the 2008/2009 troubles.
I do have problems with deficits, I can’t run a deficit, in difficult times governments and people make tough decisions. While some people need assistance other budgets need to reflect difficult times. In most cases offsets, ie job freeze, budget cuts, delay of capital projects, every capital project has operating cost that should be part of a life cycle costs being government that is good to the people may not be good government.
As for MLA’s most of them this is the best job they have ever had and the best salary they have ever had, their plan should be no better than a civil servents pension plan.
Government will not respond because it does not get votes it only scares people who vote for the other party who promises things they can not provide without hugh debt.
The 10% rule sounds very reasonable. It would seen simple solutions are usually the way, not 2500 page documents.
Brian Knight | January 26, 2010 |
Thanks Brian.
Bill | January 26, 2010 |
When the economy is rosy the topic of pensions and return on investment is usually all about how this or that is doing so well. The element of risk tends to head into the background until things turn south; then pain can set in for those like me that rely solely on my own resources and abilities to prepare for retirement.
I don’t mind the taxpayers employees setting up their own pension schemes, that makes sense, but doing it in such a way that I (taxpayer) take all the risk and they none is objectionable. I know it’s not that simple, increased taxes apply to us all etc. but the “town” of Nova Scotia (900,000population) can’t afford a Cadillac zero risk plan such as the one our employees enjoy now.
Our town of Nova Scotia has Federal, Provincial, Municipal governments, school boards, commissions, regulatory bodies, an entire legal system etc. all for less than a million people. Maybe this was all necessary a hundred years ago when transport and communications speeds were measured in weeks or days. But today we simply can’t afford, or need, the duplicated layers and layers of government. Let’s remove obsolete functions, let’s make the most of Atlantic cooperation, let’s innovate processes and run an affordable, effective government.
Thanks Bill for making this forum available.
Nick
Nick Jupp | January 22, 2010 |
Nick thanks for this. We will have a further comment on the Pension issue and a recommended response for government early next wek.
Bill | January 22, 2010 |
Maybe we need a combination of the existing public pension plans with a combined format as well…..not sure of the solution….certainly a great topic to talk about…..its all over BNN these days. At the young ripe age of 38, and as one who has over contributed to his pension plan above the minimum requirements, maxed out on RRSP’s and jumped all over the TFSA last year, my concern is that for all my early years of penny pinching the government may in 10-20yrs out tax the frig out of these sources.
Grahame | January 20, 2010 |
We have had well over 1,000 unique visitors to the site as of Jan 18th . In addition to the posted comments I have received several dozen emails, some providing general encouragement, some with substantial commentary, and some raising other topics for consideration.
In those comments there is a broad consensus that something must be done to bring the cost of these pension plans under control. Some advocate a transition to defined contribution plans. But these have some serious disadvantages including higher investment costs and the inability to pool longevity risks.
Next week the Pensions in Crisis posting will be updated to include a proposed approach to addressing the problem.
In the next couple of days there will be a new posting on a completely different topic.
Bill | January 20, 2010 |
Hi Bill and thanks for the opportunity to provide my comments on this issue.
I am a 41 year old, non-unionized employee of the Provincial Government and have been paying into the PSSP for about 15 years. I am eligible for retirement at 54.
The previous post have considered the fairness issue only from a public sector vs. private sector employee perspective. While this is important, we also need to consider this issue from a generational perspective. It seems to me that on a go forward basis this is a fairly easy problem to address – we move from a defined benefit to a defined contribution plan (I will ignore for a minute the political challenges to this which are obviously huge!). The problem is we would still be left with an historical deficit related to those folks who have already retired or who are close to retirement. I know it’s fashionable to beat-up on the Baby Boomers these days, but we are looking at a situation where a group of people have promised themselves certain benefits without making the required contributions to pay for those benefits. It seems to me that any ‘fair’ solution must include a reduction in benefits for current and soon to be pensioners.
Now when I mention this to my 50+ year old colleagues that get very defensive, but from a fairness perspective we cannot simply continue to burden the 20 something generation with these cost. From a practical perspective as well: this is the most mobile portion of the population and they won’t stay in the province or work in the civil service their entire adult lives just to subsidize someone else’s lifestyle.
At the end of the day, we are all entitled to the lifestyle we can afford – nothing more, nothing less.
Robert | January 12, 2010 |
Robert your contribution as a member of the provincial plans is particularly appreciated. You rightly point out that this is not a matter that only taxpayers should be worried about. Younger members of those plans ( who are also taxpayers ) should be even more anxious for the plans to be put on a responsible footing. Otherwise they will be asked to contribute to the underfunding of those who retired before them.
Bill
Bill | January 16, 2010 |
Bill, thanks for establishing this website. This is a hot topic.
I have been employed in the private sector for my entire career and currently participate in a Defined Contribution plan. This program is simply a supplement to my retirement planning, and would be in no way adequate on its own. As such, I have had to become very knowledgeable about our personal investments.
I have many friends who will benefit from public sector plans, but I do not feel, particularly in a province where we already pay some of the highest taxes in the country, that it is my responsibility to help fund deficits in such plans. That being said, I would certainly expect the government entity managing these funds to act in a fiscally responsible manner. I am also surprised that they do not have to manage these pensions within the same guidelines as managers of private company pensions (being required to immediately fund shortfalls, etc.).
Regardless of the type of plan in place for Canadians today, I am baffled by some of the ongoing discussions about pension reform. It seems inevitable that any type of reform will result in significant costs for all taxpayers. Quite honestly, I believe many citizens may benefit from a closer evaluation of the fees being charged by Investment firms. I recently learned that clients in the US pay a significantly lower average rate (MER) for their mutual funds than those of us here in Canada. I would also like to see much more transparency around the hidden costs of investing (sales fees, back and front end commissions, etc.) Finally, I believe there must be a far more open mode of “disclosure” in the investment industry, so that the average citizen is aware of how their money is invested and why. Until this industry aligns their goals of their own revenue growth with that of their clients, consumers will be at a disadvantage. From personal experience (I have been managing our investments for a few years now) this is not rocket science, and investors are paying far more than they should for their “advice”. I understand reform in this area will not help those who have not yet set aside any personal investments, but believe such scrutiny would certainly be of benefit to the segment that have been successful in doing so.
Mary McDaid | January 11, 2010 |
Mary thanks for this. The level of MER’s is a puzzle to me.The growing popularity of exchange traded funds reflects the beginnings of a consumer revolt.Bill
Bill | January 16, 2010 |
I am concerned at how many more people at much higher salaries,benefits and pension plans work in the public “service” now compared to just 60 years ago..while Nova Scotia’s population has remained relatively constant…Have we become that much harder to govern?…cheers
Allan Rodger | January 11, 2010 |
1.No, yes
2. Taxpayers must be protected against the costs engendered by profilgate politicians.
3.Yes
4.Yes
5.Yes
Given the increase in life expectancy and better health of the elderly a strategy of continuing employment but reduced responsibilty for retirees will be needed.
Gerald Klassen | January 10, 2010 |
Bill – Hello & thanks for doing this!
In response to your questions:
1) No, not currently a PP member; do have some limited pension monies from 2 previous employers. Through RRSP and other income, yes have adequate (perhaps) provision for retirement.
2) NO!!!
3) YES!!!
4) YES!!!
5) YES!!!
If the current NSGov’t does deal with the deficit, pension issues and limiting tax increases to pay for even higher public sector wages, we will start to see an erosion of middle-income workers and retired population. This will only increase the problems remaining Nova Scotians face.
I have worked hard my entire life. I have no interest in paying for first-class public sector or teacher pension plans. Yes we have all suffered in the recent financial crisis, but NOBODY is going to step-up and “top-up” my RRSP or Nobody is pension plan losses. I completely agree that if plans are in deficit – increasing contributions and/or a combination of de-indexing/reducing benefits is needed.
Regards – Harold
Harold | January 9, 2010 |
3. & 4. Absolutely!
2. It would depend on the nature agreement between the sponsor and member on a plan by plan basis.
I have had some experience in the pension world, mainly from the investment management side. I think a large part of the problem with pension plans is defined benefit plans, where the sponsor promises a complex formula that takes an employee’s time, grade, contract etc etc and tries to promise x amount for y number of years. The problem is while the promise is firm, how much money needs to be put in is not clear. When I worked at the Ontario Teachers’ Pension Plan (the largest defined benefit in Canada with 10,000s of members) it was a huge job for auditors to determine if the fund was fully funded or not. A lot of assumptions needed to be made. The problem is it can never be definitely stated if a defined benefit plan is fully funded. The problem is too complex, all that can be given is a range of confidence. You could have a fund that is well funded, but loose 50% through poor investments (eg the hedge fund write downs in August 2006), or the union may push for richer benefits and the fund can go from well funded to under funded over night. It is a complex mix of investment returns, membership, longevity of members, funding deals, payout formulas etc So defined contribution is much better, you put in x amount per year, the fund invests it and you get some portion of the pot when you retire, there is no promised amount, it is what it is. Just like an RRSP. It can never be under-funded. So perhaps the answer is to transition these public defined benefit plans to a defined contribution plans, by encourage members to extract some locked in amount to be put into an RRSP or other defined contribution plan and wind the plans up.
Jonathan Dean | January 8, 2010 |
A socially useful means to generate much needed revenue for Nova Scotia would be the wide introduction of speed and red light cameras throughout our Province .For many years ,these cameras have been widely used in Australia,the UK, France and Wahington,D.C.. The net and fully-documented results have been highly significant reductions in road deaths,injuries,social costs associated with road accidents and the generation of much needed money from those causing social destruction and much human suffering by their irresponsible and mindless driving behaviour. Many politicians fear unpopularity;they should fear bankruptcy more.
Morris Givner,Ph.D., | January 8, 2010 |
It’s nice to see that you’ve taken up this extremely important discussion. As a practising Certified Financial Planner and tax payer in Nova Scotia I am very worried about how the pension shortfall burden will be ‘shared’ going forward.
While attending the annual CIFP (Canadian Institute of Financial Planning) convention held in Halifax last June I had the opportunity to listen to the head of the NS Public Pension Plan speak. In the Q&A I asked him what the unfunded liability was in the plan and if the province was going to consider a DC plan (defined contribution or money purchase).
His first concern was whether any media were present – it was the day before the election. I then learned that the plans he managed were about $ 3 billion under funded and that there were no plans whatsoever to consider a money purchase or DC arrangement.
Any taxpayer should be very concerned about this issue. Who is going to make up the shortfall?
Richard Johnson | January 7, 2010 |
The government mus answer exactly that question in this Spring’s budget.
Bill | January 16, 2010 |
Good recogntion already!
http://www.taxpayer.com/blog/07-01-2010/nova-scotia-pension-plan-3-billion-hole?utm_source=twitterfeed&utm_medium=twitter&utm_content=Canadian%20Taxpayers%20Federation
Bill Tufts | January 7, 2010 |
I have but one comment.
All government employees pension plans should be based on the same format.
This would include M.L.A. pensions, they are employees of the taxpayer and should be treated no different than the secretary or janitor. Government spending must be brought under control and pensions are a big part of it.
Equality for all.
Bill Holmes | January 7, 2010 |
Bill
Congratulations on your new site.
This indeed is a major issue for all Canadians. It is apparent for several reasons that these pensions are no longer sustainable.
It is sad that DB plans are dead in the private sector. They are a good way of providing for retirement income.
You have pointed out the reasons why they are not sustainable for the public sector as well.
1) Low contribution levels. The CD Howe estimated these pensions to cost over 30% of wages. This is why they are underfunded close to 30%.
2) Based on final salary. These pensions are based on the highest career earning of the public sector employees. Most private plans are a lot less generous and based on career average.
By governments are failing to deal with these issues today. They are prolonging and aggravating the pain that will be felt by taxpayers either by directly covering the shortfalls in these plans or indirectly by the future funding of government deficits.
Good Luck
Bill Tufts
Fair Pensions For All
Bill Tufts | January 7, 2010 |
Thanks for emphasizing the urgency of a response.
Bill | January 16, 2010 |
Two inter-related issues. First – balanced budgets. Imagine the benefits, i.e. tax reductions and/or improved services NS could provide with $867.3 million – further health coverage for seniors, e.g. ambulance for those on GIS, an expensive vision care treatment as suggested by the Health Minister, transportation support, e.g. Yarmouth ferry service and on and on and on. Of course $867.3 million is not a random number, but the amount NS spent in 2008-2009 servicing its debt. We are burdened by the excesses of the past. We must bring this monster under control in order not to create even greater issues for our children and grandchildren. Since 2001-2002 the Canadian wage and salary index increased on average 3.1% per year. CPI increased 2.3% per year. NS revenue increased 6.5% per year, yet NS net program expenses increased 7.8% per year. There are a number of departments whose expenses increased > 20 % per year, including Police and Victim Services and the Public Service Commission. I can’t imagine any justification for increases of these levels in a province where population has been remained essentially flat over the same period. NS cannot afford this level of spending. Had expenses increased at the rate of revenue since 2001-2002, i.e. 6.5% – still over twice the wage and salary index and 2.75 times CPI, expense levels would be lower by more than the 2008-2009 deficit. I passionately believe generations should pay their own way, and never create or increase debt and debt servicing costs for those who follow. With respect to the pension issues pension costs need to be considered like any other expense of the province, and subject to the constraint of a balanced budget. Unless pension benefits, in lieu of salary, are required as a recruitment and/or retention tool I can think of no reason public sector employees should benefit from richer programs than those of the private sector. To the extent the benefits are greater the employees, not the taxpayers, should fund any shortfall. Tax dollars, i.e. the government’s cost, should fund reasonable pension benefits consistent with those provided by the private sector. Employee/participant contribution levels should then determine the level of ultimate benefits. If the participants are unprepared to fund the deficit, benefits should be rolled back, particularly where benefits are richer than those provided in the private sector. Transparency is required for MLA pensions, with separate accounting. Certainly the government should respond to these issues in its next budget. Regrettably I accept it may not be realistic to eliminate the entire deficit in the 2010-2011 budget but I strongly disagree with the federal government’s four or five-year timeframe. The NS deficit needs to be eliminated within two years. Thank you for the opportunity to comment.
Norm Collins | January 7, 2010 |
Thanks Norm. Your note usefully points out that the prior government needed to drastically change its ways to avoid deficits even without a financial crisis. The current government can not claim to have addressed the issue without addressing the pension question.
Bill | January 16, 2010 |
I’m a 26-year-old private sector employee, and have belonged to a defined-contribution plan through my employer for several years now. While it’s currently ineffective for me to speculate where the markets will leave my pension plan savings at retirement, I intend to supplement that plan with a healthy amount of personal and RRSP savings through my working life. As such, I resent even the suggestion that I should be on the hook as a taxpayer to reconcile underfunding in public sector DB programs. More of the risk associated with these plans needs to be downloaded to the public sector worker in the form of increased personal contributions, and a gradual move to a public sector DC scheme (as many responsible, realistic private sector employers have already committed to) by closing DB membership to new employees.
Government needs to make examination of such changes a priority at budget time, primarily to open a dialogue on the state of things with Nova Scotians, many of whom remain largely unaware of the crisis before us. Certainly, such a discussion needs to take place before any contemplation of tax increases. The current government could take a symbolic step forward with consultation on some reformation of the MLA pension scheme going forward, and it would dovetail nicely with the very public overtures made over the summer and fall toward tightening an array of MLA benefits.
No sensible person privy to the information at our disposal can expect these plans to simply “stay the course.”
Prokosch | January 6, 2010 |
Thanks for your comment. The two things we need are transparency and cost certainty. The MLA pension plan would be a great place to start for improving transparency. As for cost certainty , moving to DC is one of a number of ways of doing so , perhaps not the best. Bill
Bill | January 16, 2010 |
Thanks for posing the question. This is a great forum to discuss and put focus on individual topics.
I don’t belong to a pension plan, but I used to work as a financial consultant with a large national investment management firm that handled pension plans and RRSPs for group benefits programs for private and public organizations of all sizes.
What I learned from that experience is that retirement planning is an individual responsibility. Pension payments from a defined benefits plan (by definition) don’t reflect the true performance of a retiree’s investments during their years of work. So, it’s not a surprise that when pooled pension funds take a hit, companies with DBs sink (as they are forced to artificially inflate the payout to meet the promised benefit levels).
As we have seen recently, when those companies are significant in size, the government steps in with bail outs. And therein lays the problem.
Now, different people may feel differently about bail outs depending on which side of the cheque they are. However, there is a certain legitimacy to the argument that tax payers should not collectively be responsible for ‘chipping in’ to ensure that people on DB plans maintain their promised standard of post-retirement lifestyle.
The main justification for this objection is that the same gesture would not apply to people who are not under a DB plan, or who don’t belong to pension plans whatsoever.
As a person who doesn’t belong to a pension plan, if my retirement funds take a hit in the market will tax payers jump to my rescue? Should they?
All I’m saying is that it feels unjust to be asked (as a tax payer) to subsidize someone’s retirement if I myself don’t have access to the same privilege, even though my retirement funds experienced the same crisis.
I guess that’s the long way of saying that I don’t believe that deficits in public (or private) sector plans should be shared between taxpayers. They should be assumed by the participant just like they are assumed by other citizens who are not under pension plans.
issmat | January 5, 2010 |
Thanks for your comment. I believe your sentiment will be shared by many . But it will not always be true that civil servants and teachers have the same employment circumstances as others .
This particular issue comes to a head because of historic underfunding plus the very adverse experience in 2008 plus the sheer size of the amounts .
Bill | January 16, 2010 |
More and more private sector companies are moving to a defined contribution pension plan from a defined benefits pension plan in recognition of the unsustainability of these plans. It is not reasonable to expect the average taxpayer who, as you point out,either does not belong to a pension plan or has limited RRSPs to fund these unsustainable public pension plans that are fully indexed. Governments need to move to defined contributions plans for any new hires. A recent CRA survey of workers in Atlantic Canada indicated that the public sector has been largely unaffected by the recession in the region. For example, 75% of public sector workers received a wage increase in 2009. This compares with only 44% of private sector workers and only 32% of not-for-profit workers. As far as I know, the only job lost in the region has been from the public sector.
Don Mills | January 5, 2010 |