P.E.I. Pension Reform Shows the Way
Posted November 1, 2013
Newly minted Finance Minister Diana Whalen has a golden opportunity, but it must be seized immediately.
On October 15th, Prince Edward Island joined a growing crowd. The Federal government and the governments of Alberta and New Brunswick have begun moving toward a more sustainable model for public sector pensions. Others are looking at options and can be expected to follow.
Most importantly, the NDP government in Nova Scotia showed the way with its reforms to the Public Sector Superannuation Plan (PSSP) for civil servants. As a result, taxpayers have a much better prospect for cost stability, while members of the plan still have pension benefits among the very best in the province.
In PEI’s case, the reform was comprehensive, encompassing civil servants, teachers, and health care workers. Benefits being paid today are not reduced. Neither are the benefits accrued to date by active members. But future accruals will occur more slowly, and the age for unreduced retirement benefits increases to at least 62. Indexing will only occur if the plan is in surplus.
Union leaders acknowledged the need for change, although they were not happy with the particulars. Nevertheless, they seem resigned to the outcome.
Nova Scotia has a lot left to do, most particularly with the Teachers’ Pension Plan. That plan’s 2012 report advised that the assets on hand were less than 72% of what is required to properly fund the benefits. By comparison, PEI’s pre-reform 83% funding looks quite well off. Of course it isn’t.
Beyond that, there is an enormous inequity in the Teachers’ Plan. Those who retired prior to August 1, 2006 receive inflation indexing regardless of the plan’s financial status. Those who retired after that date, and all active teachers, will only receive indexing if the plan’s finances are sound. Without reform, they are unlikely to ever receive it.
The consequence of this underfunding shows up in the province’s budgets as the “Pension Adjustment.” This is forecast to increase from $104 million in 2012-2013 to $171 million in 2016-2017 and to continue increasing thereafter. The five year cost totals an enormous $668 million of which the Teachers’ plan is by far the largest source.
Reform is required to bring the plan into a healthy state, and to redress the imbalance between pre-August 2006 retirees and other participants.
In PEI and elsewhere, these reforms have typically included: No reduction in retiree benefits or benefits earned to date for active employees; indexing in future, conditional on the plan being in surplus; additional benefit accruals in future years will be a little slower. After such changes, the Teachers’ plan would still be among the most generous in Nova Scotia.
In due course, the same thinking is required of other public sector plans. Top on the list is the MLA plan which continues to be absurdly generous. The problem is both the size of the pensions and the lack of transparency. Premier Dexter’s pension exceeds $130,000 after less than sixteen years of service, which has been a surprise to many Nova Scotians. That is worth perhaps $2 million. Premier McNeil is well on his way to a similar package.
Politicians need to be showing leadership. Benefits earned from the beginning of the current legislature should be similar to those earned by civil servants, still a very attractive package.
There will never be a better time to make the necessary changes. The Official Opposition Progressive Conservatives campaigned on a commitment to reform the MLA plan which would set the stage for changes to the larger plans. They can hardly criticize this needed change while holding to their claim of fiscal prudence.
Former NDP Finance Ministers Graham Steele and Maureen MacDonald both acknowledged the need for the Teachers’ Plan to be reformed. They established the template with their reforms of the PSSP.
There is a remarkable opportunity for a non-partisan consensus. The next election is four years away, and there will be plenty of time for opposition parties to find more worthy reasons to differ from the government.
In its 2012 annual report, the Teachers’ Plan Trustee said: “Throughout 2012, we researched and considered various options that will improve the long-term sustainability of the Plan. In 2013, we will provide the Plan Sponsors with comprehensive recommendations that will include what we believe are necessary Plan amendments.”
That report will soon arrive on the new Minister’s desk, if it is not already there. Eliminating the Pension Adjustment will provide enormous savings that can be used to balance the budget, reduce taxes, improve health care, or save schools.
In addressing this problem the government will be following a cross-Canada trend.
It is hard to imagine a more opportune time for Minister Whalen to deal with this issue.
Related ArticlesPensions in Crisis
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- A Weak Response to the Teachers’ Pensions Plan Deficit June 20, 2014
- Fix the Teacher’s Pension Plan Now May 16, 2014
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