Wednesday, December 30, 2009

Globe and Mail creates a splash

There is an article on the front page of the Globe and Mail today called Ottawa targets public service pension plan for cutbacks.

Some of the highlights of the article include: 

The generous pension plan enjoyed by federal civil servants is being targeted for possible cuts, including an end to early-retirement provisions for new hires.
... senior civil servants are also concerned that too many bureaucrats retire in their mid-50s, causing staff shortages that are set to worsen in coming years.
One of the most controversial aspects of the federal pension plan is the ability to retire with a full pension at age 55, after 30 years of service.
According to the Treasury Board, however, federal employees paid $1.2-billion into the plan in 2007-08, compared to the government's $2.6-billion share. That 32-per-cent employee contribution will go up, but only to 40 per cent by 2013.
This report is a mixture of interesting statistics and policy  recommendations about public sector pension plans. The information is gathered from the pension site of the Treasury Board. It is supplemented with information from a review done on wages in the Federal government. Although the information is not current, based on past trends the current salary base in the federal public sector is around $65,000 per year and the total compensation is close to $89,400. The average annual compensation for members in the RCMP service is estimated over $100,000 per year. Treasury Board Salary Review.

Retirement Tsunami

Canada has been aware of the demographic shocks coming from the retirement of the Baby Boomers. The PSI produced a report in 2005 called The Retirement Tsunami. In the report they stated that starting in 2007 more workers will be retiring than entering into the workplace. In 2010 they estimated that 370,000 workers will be riding off into retirement.

These numbers call into question the current retirement ages in Canada and specifically the retirement of the public sector with a much lower retirement age. The CFIB back these findings with a report called the Pension Predicament.

Fair Pensions For All

The Globe and Mail highlighted the contribution levels of taxpayers into the public sector retirement plans.

One of the key questions about the contributions is ... what is fair to all Canadians? Canadians have contributed $631 Billion into individual registered plans but $555 Billion into public sector employee plans.
NUPGE comments on Pension Assets in Canada

Canadians have access to the CPP but suffer reduced coverage by triggering their pensions early. If this is fair for taxpayers why should the public sector not play by the same rules?  Is it wise to take early CPP?

Recommendations for Fair Pensions 
  1. Public sector employees should play by they same rules as all Canadians. Basic retirement is age 65. If pensions are taken early they should be reduced to the same level as taxpayers. Ie. 30% reduction for pensions at age 60 or .5% per month before age 65. (Thanks to L Rob)
  2. Cap public sector pensions at a fair level. In the US two current electoral candidates have suggested that pensions in the public sector should be capped at $100,000 per year. 
  3. Make all public sector pensions defined contribution plans. There is no reason taxpayers should be expected to fund into gold-plated defined benefit pensions when most will never have pensions near these levels. 
Action Required by All Canadians 
The Montreal Gazette recently featured a three part pension series. The last article called for all Canadians to become involved in the debate. They pointed out that Pension  Woes Wont Be Easy 'To Fix
But this is not just an issue for actuaries and civil servants. All Canadians - not just those between 60 and 65 - would help themselves by taking part in a full national discussion. The retirement you save may be your own.
All Canadians need to educated and become involved in the discussion about the future of pensions in Canada.

Saturday, December 19, 2009

Disappointing Showing in Whitehorse

Many taxpayers are asking are asking "will I have enough for retirement".

In a very surprising move by the Canadian federal government came out with a report from Jack Mintz saying that there is No pension crisis. The Report on Retirement Income Adequacy looked at some of the issues surrounding retirement income security for Canadians. In the report Mintz highlighted that Canadian seniors do not suffer from poverty. Most Canadians retire with a replacement income of close to 90%. 

I contend that there is in fact a retirement crisis in Canada. It is based on taxpayers of the baby boomer generation funding platinum pensions for the public sector. The CFIB came out with a release that is calling for restored Fairness for all Canadians on pension inequity
It is unconscionable that Canadian taxpayers are on the hook for public sector pension plans when half of the Canadians working in the private sector will not even benefit from any form of retirement savings.
This call came at the same time as the CD Howe released a report that shows how large the liabilities of Canada's public sector pensions really are. The Startling Cost of Federal Government Pensions 

Enhanced Public Information
One of the complaints from the CFIB was the lack of disclosure or information about Canada's public sector pensions plans. A side benefit of the Whitehorse conference is that leading up to this meeting more information has become available about the costs of these pensions.

One of my readers, Stephen brought to my attention a Statscan release showing the value of pensions in Canada.$1.8 trillion in pension assets in Canada at the end of 2008.

This $1.8 Trillion is composed of: 
  • Pension plans - $ 1,064 Billion
  • Individual savings plans including RRSP's - $631 Billion
  • Social Security including CPP - $140 Billion 
A further analyze shows that of the pension plan assets $555.7 Billion is held by public sector pension plans.Canadians taxpayers have funded far more into public sector employees pensions than they have their own plans.

The last Statscan workforce survey shows there are 16.873 million working and self-employed Canadians. There are 2.8 million public sector employees in pensions plans in Canada. This means that 17% of Canada's workforce are public sector employees with pension plans. However, they control 33% of the total retirement assets in Canada.

On an average basis each working public sector employee has retirement assets worth $198,464. On the other hand the average Canadian, including those in pension plans have retirement assets worth $81,000. Those not in in pension plans have an average RRSP account of $65,000.

Retirement Income
Statscan reports that there is a big gap in retirement income between those with pension plans and those without.
At the other end of the spectrum are seniors with employer pensions exceeding their combined C/QPP and OAS/GIS. Just one in five 69 year-olds fit this definition, and their average income was more than double that of the other 80%—$43,000 compared with $20,200
Of course what this means is that retirement will be an unfulfilled fantasy for many Canadians.
Another strategy for those who have not saved enough for a comfortable retirement is to continue working past age 65. ..Overall, just one in eight 69 year-olds relied on employment or self-employment earnings for at least a fifth of their income, and only one in twenty-five earned enough to account for more than 60% of total income (Table 6). And the income profile of these older workers suggests that many are self-employed professionals who likely do not have substantial employer pensions. 
The highlight of the report is that:
It appears that over the past 20 years taxpayers without pension plans have contributed an average of $65,000 into their retirement plans. At the same time they have contributed into public sector pension plans so that the average public sector worker has close to $200,000.

The CD Howe shows that taxpayers are on track for another additional $500 Billion of funding into public sector pension plans.   

I respectfully disagree with Jack Mintz that there is indeed a pension crisis in Canada. Please listen to the CFIB:

The inequality issue many Canadians are faced with regarding pensions is a serious disservice to the private sector because it is imposing needless barriers for the private sector to compete on a level playing field with the public sector. This is particularly harmful for small- and medium-size firms, which are the backbone of the Canadian economy. 
Some additional facts and figures:
Pension Satellite Account
Pension Plan Contributions in Canada
Pension Coverage in Canada 

Friday, December 18, 2009

Whitehorse Pension Debate

The debate in Whitehorse has centered on a fair retirement strategy for all Canadians. 

The problem with a debate on pensions is that most taxpayers will never have a pension. Any move to bolster pensions will only pour more money into plans that only benefit Canada's pension elites.

These pension elites works mainly for government. This includes all levels of government municipal, government and federal. Most will receive a pension based on 70% of their final earnings. They will receive these pensions as early as age 50. These pensions will be paid out at a level higher than their earnings for most of their career. 

Best of all these pensions are guaranteed by taxpayers, most of who have no pensions.

An excellent report in the Toronto Star highlights the problems with Canada's federal pensions. These pensions cover 1.08 million workers. There are other levels of government that offer these same defined benefit pensions. They cover another 2.3 million workers. The pensions of other levels of government are as generous as those of federal employees. However, they are even more poorly funded than the federal pensions. 

These pension shortfalls exist despite Canadian taxpayers having funneled billions and billions of dollars into these plans. How big is the liability to taxpayers for all levels of government pensions? 

Pension risks by James Daw

Ottawa owes about $198 billion more in pension promises to current and former employees than it has set aside, a paper from the C.D. Howe Institute estimates.
President William Robson and Alexandre Laurin argue the fair value of pension promises is about $58 billion higher than Ottawa has reported.
There are about 1.08 million active and retired civil servants, RCMP, Canadian Forces, Members of Parliament and judges.
Most will collect pensions longer than they worked. If public servants' benefits were calculated the way Robson and Laurin suggest, Ottawa and employees would have to set aside 34 per cent of pay.
But the government did not start setting aside any money until 2000. Until then, it treated the pension promises as debt.
That debt obligation, the authors argue, should be calculated using the investment return paid by inflation-protected, government-backed bonds, not estimated returns from a mix of investments.
"Federal pensions as currently configured are more costly than commonly understood and expose taxpayers, and potentially participants as well, to underappreciated risks," the authors argue. "Reducing or offsetting these costs and reducing these risks should be key elements of a program to restore federal finances to a sustainable position."
James Daw, Toronto Star - Younger workers face retirement shortfall

Tuesday, December 15, 2009

Start Pensions changes at the Top

In the UK there is a review of MP pensions being implemented. Report on cutting MPs' final salary pension scheme due

This is a good place to begin the redesign of our pension system in Canada. It is hard to get stakeholders to make changes that impact them on a personal level. High MP pensions lead to low voter confidence

In BC  the cost of pensions for MLA's hit the news. In an abusive move the MLA's gave themselves retroactive pensions. Pension that pay them on a defined benefit retroactively to 1996. The costs of these gold-plated pensions is an issue that calls into question the real leadership that BC is offering at the Whitehorse pension summit. $800,000 per Lucky MLA

The BBC report cited that costs for these types of pension is in excess of 31.6% of salary. Most of the public sector pensions in Canad have the same types of high costs associated with them. This is why so many are underwater and suffer from serious underfunding, amounting to Billions. This tab of course is picked up by taxpayers.

Part of any discussion reform in Canada needs to be the reforming of gold-plated public sector pensions. All Canadians should have access to Fair Pensions, not just the pension elite.

Wednesday, December 9, 2009

Heading Towards Whitehorse and a National Pension Summit

After many pension crisis and a horrible year in the worlds stock markets the debate on pensions is reaching a critical boil. The Finance Ministers in Canada are meeting on December 17 in Whitehorse for an event called the pension summit. The summit in Whitehorse will also help all policy stakeholders in Canada to solidify their positions on pensions. 

The World Bank released a report yesterday called Pensions in Crisis
Despite the severity of the crisis, it pales in comparison to the demographic crisis which the region will face and ...
even the most severe scenario of the financial crisis pales in comparison with the effects of the demographic crisis that is looming
It went on to urge:
Countries in the region not to make any policy changes focused on addressing short-term fiscal concerns that make the long-term even worse.
Future pension system deficits can be threefold than what is currently expected, and are expected to remain at that level for more than 20 years before slightly improving. Policymakers need to use the opportunity of the current crisis to address long-term issues, which could bankrupt pension systems precisely when the numbers of people who need them are growing.”
Although the report focused on parts of Europe and Asia it is applicable here in Canada as well. The changing demographic forces are perhaps even stronger and more severe in Canada. I attempted to highlight this risk in my blog called Tales from the other side of the aging catastrophe

National Summit
Most commentators on the issue feel that now is the time to clarify the future of pensions in Canada. There are many different viewpoints and stakeholders.Here are the numbers from Statscan. Registered Pension Plans in Canada

Those currently in retirement and living on government and private sector programs have a large stake in maintaining what they have. They are represented by CARP. CARP envisions lots of pensions for everyone. They released their position in Towards a Universal Pension Plan 

Organized Labour 
Canada's labour movement has perhaps the greatest to lose as a result of any reform in this area. The unions represent mainly those employees in the public sector or at large Canadian companies. In Canada these are the only workers with gold-plated pensions. It is best summarized in a report from the CFIB called The Pension Predicament 

Independent Business 
Independent businesses are dearly affected by the pension crisis in Canada. It is here that the 11 Million Canadian without pension work. They are struggling to save for some sort of decent retirement for themselves. Theirs is  also the burden of trying to finance with tax dollars the gold-plated pensions of the pension elite. The CFIB has monitored this issue and has been a strong advocate for independent business. It is my hope that they can find a way of generating a forum for this voice to be heard. 

Pension Elites
These are Canada's public sector workers who protected by unions have gained the lions share of pensions in Canada. They pay a small contribution towards the pensions they will receive. They will retire early and be guaranteed a taxpayer funded lifetime of pension income. 
At the top of this heap are the senior mandarins of government. These are the ones who ruthlessly abuse the taxpayer for pension security. In Ontario there are over 53,000 government employees earning over $100,000 per year. This level of income guarantees them a $1 million lifetime pension.  
To see how these pension work go to the BC Pension Videos series website. These videos have provided me with lots of entertainment. The Value of your pension - Series

CD Howe 
The CD Howe Institute has been instrumental in leading a very intelligent and well balanced analysis of the pension issue in Canada. They have brought Keith Ambachtsheer the help produce a policy position currently leading the way in the pensions discussion. It is based on a Supplementary Pension (PDF) approach.

Pension Industry in Canada 
The life insurance companies and the banks in Canad provide most of the private pension coverage. It is their business and any reforms or changes to the system will put their financial position in jeopardy. They are in a delicate position and need to regain some credibility in the pension issue.  Canadians pay the highest cost in the world for the services of its banks an insurance companies. James Daw one of the foremost pension commentators in the country covers this perspective in Bankers' group wants to continue to protect you. Daw has covered the pension well. See all his articles at the Star 

Provincial Governments
At the table in the Whitehorse will be the provincial finance ministers. They have been muddling around for the past year with several expert commissions on pensions. The report from Ontario only focused on supporting the gold-plated pensions of government employees. However, the BC and Alberta commissions created the Supplementary Pension idea that is now going forward as the most popular way of reforming the Canadian pension system.
Here are the links to the Expert Commission Reports
Ontario Pension Review
Alberta and BC Getting Our Acts Together - PDF  

Canadian Media 
A very influential commentary on the pension crisis in Canada was put together by the Globe and Mail. They covered most aspects of pensions in Canada in the Retirement Lost series. I have enjoyed following the pension world through the eyes of my friend at the Pension Pulse, Leo Kolivakis.

Federal Government
To date the federal government has been quiet on the issue of pension reform. Throughout the year they have implemented a few emergency pension move but nothing major. Whitehorse will be a chance to see what is behind the curtain. The Jack Mintz Report will be released at the Finance Ministers meeting.

Friday, December 4, 2009

Candidate for Governor - Charlie Baker

Charlie Baker is running for Governor in Massachusetts. He has identified that pension reform is one of the key issues that resonates with voters.

Pension Caps
Baker said today he wants to cap all pensions at $90,000.
In Ontario we have seen the are over 53,000 public sector workers earning over $100,000 a year. Those earning over $130,000 will get pensions in excess of $100,000 per year.  This is still a pension worth $1.6 Million.

Pension spiking 
He wants to prevent workers from temporarily jumping into more lucrative jobs and collecting a boosted pension based on the increased salaries. This can happen because in the public sector pensions are based on a final 3 or 5 year average salary. The standard in the private sector is for a pension based on a career average.

Career Average Pensions 
He proposes calculating a pension over a worker’s career, rather than the top three salary years.Most government pensions are based on the final 3 or 5 years of salary.

Of course Charlie will have a tough go from the largest voting block, public servants. However, he is popular with taxpaying voters and is getting Record Amounts of Contributions for his campaign.

Wednesday, December 2, 2009

New York gets to work on Pension Reform

Governments all over the world are melting down due to the high costs of public sector pensions.

In New York City the Mayor , Micheal Bloomberg has been aware of the pension crisis for some time. Mayor Warns on Pension Costs . He warned of the impending bankruptcy of the city if nothing was done.
Now the Governor of New York has come out in favor of the changes needed to save the system from complete meltdown. He was working in conjunction with the Mayor. New York governor urges overhaul of state pension system.

Today in the State passed legislation that will be felt across the country. California and New York are both bell weather states for major public sector initiatives. The Terminator, despite his reputation, has yet to step up to the public sector unions. He may be forced to now.

State passes landmark pension reform
Some of the provisions of the pension reform include raising the minimum age, and Pension Boosting or Spiking

This legislation is the start of a trend that will roll across as the country as taxpayers are angered at footing the bill for public sector gold-plated pensions.