Tuesday, April 27, 2010

 A recent article on Bild.com outlined the anger that Germans felt towards bailing out Greece.

Greece has an economy that is melting down because of the inability of the government to control public spending. German anger at paying for luxury Greek pensions.  

Europe - Germany vs Greece 
One of the more interesting point in the article is the disparity between the pension system in Germany and the one in Greece. 

That means that with a broke Athens seeking outside help, Germany and the rest of the EU aid givers must start pouring cash into the bottomless Greek pension pit... 

Canada - Public Sector vs Private  Sector

In Canada we can make the same analysis with retirement. The private sector  would have a system similar to Germany and the public sector has a plan similar to Greece

Canadian taxpayers must start pouring cash into the bottomless public sector  pension pit...

Earliest years of work to earn full pension:
Proportion of wages as pension: pension vs CPP
70 %
25 %
Contributions required for employees based on
Salary* :
9.9 %
Total accumulation in pension plans **
$805 B
$ 314 B
Pension increase 2010:
3 %
0.4 %
Average Ontario Teachers Pension vs. CPP
Average retirement age vs. self-employed
Percentage covered by gold-plated pensions
Minimum pension age:

* contributions based on current federal government contributions required and CPP required for self-employed. http://www.tpsgc-pwgsc.gc.ca/remuneration-compensation/apr-sam/apr-sam-2-5-1-eng.html

** Statscan report: Pension assets by type of plan at market value 2007

Tuesday, April 20, 2010

How much retirement income is needed?

The debate over double dipping teachers has raised some valid points. In the Toronto Star there was an article about this Canadian teachers and their fat-cat pensions

How much is sufficient retirement income?
Consider this:
  1. A public sector pension valued at $40,000 a year would require you or I to have a RRSP or pool of money set aside of about $640,000 to cover this amount of income. How big is your RRSP? 
  2. The $40,000 does not include the CPP that a public sector employee will earn. This is another $11,000 per year.
  3. The target on a public sector is 70% of income. This year the highest earning teachers will retire with an income of $95,000 generating a $66,500 pension including CPP. The $40,000 that the OTTP sends out includes teachers who have been retired for 30 years or more. A more accurate number would be what is the average new pension this year?
  4. The average working Canadian earns a little over $40,000 per year.
  5. The single largest expense for Canadians after taxes is the cost of housing. In Canada 85% of seniors over 65 have their home mortgages paid off. In the higher income groups it is probably larger. This in itself is a 30% reduction in the cost of living.
  6. There are dramatic reductions in the cost of living for retirees. They pay no more CPP contributions 4.95% of YMPE income. No more EI premiums, cost of clothing for work, transportation and lunch allowances.
  7. The average Canadian has an RRSP value of $25,000. 
  8. Finally on the issue of fairness the public sector employee will have paid  a contribution of between 7% to 9% for a 70% pension. A self-employed person will have paid 25% of income for a 25% CPP pension. 

Monday, April 19, 2010

Double Dipping Teachers earn $108 Million over and above pensions

 The CBC reported that Ontario has rules which allow teachers to work as supply teachers up to 95 days in first three working years after retirement without it affecting their pensions. It is known as double-dipping because teachers are also earning pensions at the same time they are being paid. 

No clampdown on Ont. teachers' 'supply work'

Double dipping is a problem for taxpayers that is going to be more and more prevalent in the next few years. As the baby boom starts to retire, especially the public sector, and being faced with a worker shortage, government organizations will need retired workers to fill in. 

What allows double dipping is the fact that many teachers are eligible for pensions at age 55. They will receive a pension valued at close to 70% of their retiring wage, including CPP. For teachers in Ontario, with a career ending income of $95,000 per year, this means a pension of about $66,500 per year including CPP.

So the double-dipping is a bit of extra pocket change. 

Teaching is Big Business 
In Ontario the education budget accounts for17.5% of all provincial spending. Healthcare accounts for 37%. In 2009 this meant that about $20 Billion was spent on education.

Some education taxes are collected as part of municipal property taxes. They are a significant chunk of most taxpayer's property tax.  For example in my hometown of Hamilton the revenues coming into the Hamilton Wentworth District School Board in 2009 were $495 Million. This compares to about $1.3 Billion for the city budget at the City of Hamilton

Of course spending on schools never goes down. It continues going up, up and up despite the fact that enrollment in schools in Canada is falling like volcanic ash. In order to justify increased spending every year school boards have come up with many creative ideas. The most popular current one is smaller class sizes.

Wednesday, April 14, 2010

Once upon a time in a land not so far away....

The Political Parasites of Taxland
By Stephen J. Gray

The political parasites ruled and infested a place called Taxland. This was a land where the people were modern day taxpaying serfs. 

The serfs over many years had been taxed into submission by the political parasites. The people were now prisoners of a system that was uncontrollable. Political parasites of all shapes, sizes, and genders ruled; and they chewed and munched their way through the serfs tax dollars. There was no escape from the ravenous appetites of the political leeches. These political bloodsuckers took a part of everything the serfs earned, bought, traded or received. 

Taxes had to be paid on just about everything, and the political parasites aim was to eventually tax everything. Nothing was going to be immune from the parasites and an antidote had not yet been found to control their parasitical infestation into the lives of the people. The people were being literally eaten alive by taxes from these tax addicted creatures of Taxland.

In this land if the serfs bought a new house it would be taxed. If they had to put a new roof on an older house because it was leaking, they were taxed on their misfortune. If they bought clothes or needed clothes for their children they were going to be taxed. If they bought a car they were taxed. If the car had to be repaired they were taxed. If they bought gas for their car they were taxed. If they bought toilet paper they were taxed. If they needed a new toilet it was taxed. There was no escape from these bottom feeding parasites. 

The taxing list was endless, though there had been a few exemptions. But, now the political parasites had decided to “improve” their system of taxing the serfs. They created a new tax called Hammer the Serfs Tax (HST). This tax would “simplify” the system and tax everything that moved and did not move. This would be a tax feeding bonanza for the political parasites, and the serfs hard earned money would flow like water into the coffers of Taxland. Taxes had become a racket, and gangsters and racketeers everywhere were complaining that the political parasites had usurped their territory and copied their system.

Still, the system was good to the political parasites. They themselves had huge salaries paid for by the serfs.  Tax-free allowances, a rich pension plan that the serfs could only dream of. Some of them had limousines to take them from place to place as they went about their taxing business of ruling over the serfs. The serfs were also told by some of the lackeys of the parasites that some of these new taxes would create jobs. And, a big banker reportedly said, “taxes had to be raised.” Which was a rich statement coming from a banker, especially when some of these big banks had subsidiaries in offshore tax havens. Still, this was how the game was played in Taxland, the powerful and the political parasites ganged up on the serfs.  

The serfs were being taxed while alive and at death. 

They were prisoners without chains in a system called a political “democracy.” They voted in these political parasites that fed off them and then they were punished by them. One wondered if the serfs would ever rebel, or were they conditioned into accepting their tax slavery as “normal?” 

This then is Taxland where political parasites rule.

Conservative manifesto for public sector compensation

There is a federal election going on in the UK.

One of the big issues in the election is the cost of the UK public service. Of course, like in Canada public sector pensions are a big concern.

In order to address some of the issues around compensation and pensions the Conservatives have focused on these key issues:

Public sector pay and pension 
  • The date at which the state pension age starts will rise to 66, no earlier than 2016 for men and 2020 for women.
  • Cap the biggest public sector pensions above £50,000 and work with the trade unions, businesses and others to address the growing disparity between public and private sector pensions.
  • A one-year public sector pay freeze in 2011 (this won't affect the one million lowest-paid workers).
  • Public bodies will be required to publish online the job titles of every member of staff and the salaries and expenses of senior officials paid more than the lowest salary permissible
  • Anyone paid more than the Prime Minister in the public sector will be required to have their salary signed off by the Treasury.
  • Councillors will be given the power to vote on large salary packages for unelected council officials.
  • Senior civil servants will be required to publish online details of expense claims and meetings with lobbyists. 
Lets see if Canadian politicians have the  strength to do the same.

Monday, April 12, 2010

Ontario Teachers on a rip snorting buying spree

Using the taxpayers cash they have accumulated, Ontario Teachers Pension has been on a buying spree! It has been easy to pick off private sector companies suffering from the Great Recession. Pension plans have a natural advantage too, because they pay no taxes.

We should expect a lot more of these deals to come this year! 

Last year Ontario taxpayers kicked $1.4 Billion into the plan. McGuinty committed to another $500 Million top-up to pensions in this year's budget.  The reason for this generosity with your money is that the government wants to help "bailout" the $17 Billion shortfall taxpayers have in this pension plan. 

All this new money adds to the pool of money teachers and taxpayers have funded into the plan. Last year the plan was worth $96 Billion and down from a high of $110 Billion just a few years ago. This has been accumulated for 286,000 teachers and retirees. Note the CPP plan has assets of about $122 Billion for about 18 million working Canadians. 

There is no pension crisis for them!

Here are the listed transactions since the start of this year.

Teachers buys AIG's Canada mortgage insurance unit 
Teachers buys U.S. aluminum container maker 
Ontario Teachers’ Pension Plan buys British national lottery operator 
Munchkin says Ontario Teachers' Pension Plan buys stake 

Add this to the other assets of Teachers.  
Global Terminals - Port Terminals of Vancouver, New York and New Jersey   
Birmingham International Airport   
Teacher controlling interest in Esval S.A, Chile's water supply    
Samsonite Corporation one of the world’s largest designers, manufacturers, distributors and marketers of luggage 
New York Container Terminal on Staten Island 
Yellow Pages  
CTVglobemedia Inc  

Too many others to list  

Saturday, April 10, 2010

Changes coming to pensions in Canada

Pension Envy and the huge problems with public sector pensions - Report from New Jersey

Across Canada there is a rising cry about pensions. Everyone sees huge problems that need to be addressed.

Next week the University of Calgary, will host Canada's premier conference on public policy related to retirement income in Calgary on April 12 and 13. The federal finance minister along with the finance ministers of Ontario and Alberta will be addressing the conference. There is a stellar list of other retirement experts who will be in attendance.

The conference is a group of officials getting together from across Canada attempting to tackle the challenges facing a large generation of retiring Canadians.

There will certainly be lots of interesting news from the event but don't expect any changes.

I have been watching pensions for several years now. One of the first reports I noticed on pensions was a Business Week cover story called Sinkhole! Or another favorite was a Forbes magazine cover story. Called The $366 Billion Outrage, the story started off: 
 The $366 Billion Outrage All across America, state and city workers are retiring early with unthinkably rich pay packages. Guess who's paying for them? You are.
Unfortunately policy makers and politicians have been aware of the problems for years, but  are not prepared to make reforms. The reforms necessary for all Canadians. It has been a frustrating 6 years watching as taxpayer money has been pumped into pensions and at the same time most taxpayers are falling further behind. 

Politicians and other policy makers all have a vested interest in the status quo. Usually this interest takes the forms of a personal juicy gold-plated pension.

Despite the fact the problems have been known for a long time,  American government and policy makers have only recently started to deal with them.  Canadian policy makers are terrified of the issue!

The main problem with pensions in Canada is that taxpayers fund huge dollars into the pensions of public sector employees and relatively little into their own.

Many Canadians will never be able to save enough to afford a comfortable retirement yet are forced to contribute into the pensions of the public sector. Most public sector employees will retire at a young age with gold-plated pensions far in excess of most Canadians' retirement savings. We cannot let this pension apartheid continue.  

CFIB states ....
The unfairness has gone on long enough

Wednesday, April 7, 2010

What will it take?

The Tea Party Express

Leo Kolivakis in his Pension Pulse asks - Will pension gaps spur tax revolts? 
It's a huge mess, akin to watching a slow motion train wreck and when it comes home to roost, there will be a tax revolt and strikes from public sector workers. I hope I'm wrong, but praying for private and public markets to bail us out of this mess is a fool's paradise.
Another trend that is literally crossing the US is the Tea Party Express. Ironically part of this route is very similar to the one taken by the Joad family in the Grapes of Wrath.  
“You, the politicians in Washington, have failed We The People with your bailouts, out-of-control deficit spending, government takeovers of sectors of the economy, Cap & Trade, government-run health care, and higher taxes! If you thought we were just going to quietly go away, or that this tea party movement would be just a passing fad, you were mistaken. We’re taking our country back!” 

As Leo states in finishing his blog it will take a miracle of monumental proportions to get us out of this mess. 

What if it does not happen?