Pensions in Crisis – Update
Posted May 2, 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:
- More than half the amount of money ($880 million) that the province received from the offshore accord.
- Equal to two and a half years worth of the increase in HST
- 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:
- Will he undertake that any future surpluses in the plan will be used to repay taxpayers before any benefit improvements are made?
- 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 ?
- Will he avoid writing another huge cheque when sorting out the Teacher’s plan ?
- 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.
Related ArticlesPensions in Crisis
- CPP Changes: Don’t Pop The Champagne July 8, 2016
- A Weak Response to the Teachers’ Pensions Plan Deficit June 20, 2014
- Fix the Teacher’s Pension Plan Now May 16, 2014
Voters trying to understand the various positions being advocated for the Canada Pension Plan have every reason to be confused.