Thursday, March 31, 2011

Laurentian Medical College makes cut backs on staff to pay for pension

There was an article in the Sudbury Star that shows the increasing danger of gold-plated pensions.

24 jobs cut at Northern Ontario School of Medicine. 

NOSM is operated by Laurentian University in Sudbury. It is unacceptable for the people of Ontario at a time when there is a strain on our health system and a shortage of qualified health care employees to be cutting back staff to pay for gold-plated pensions.

This came out on the same day that the province released its Sunshine List and shows over 240 staff at Laurentian earning over $100,00 per year. This is up from just 180 in 2008. Each one of these positions comes with a pension worth 70% of this income.

One manager at the University earns $304,000 which does not take into account the gold-plated pension. A manager will be entitled to a pension valued at $212,000 per year or 70% of his final salary when fully qualified. This type of pension has a cash value of about $3.4 Million.

Last year the college contributed $ $11.7 Million into their staff pension funds. This amount is up from $5.9 million in 2008, an increase of $5.8 million or 98%. If used to hire additional administration staff at $50,000 per year, this amount would allow for an additional 116 staff members.

Management decides to allocate this money in pensions and benefits rather than hire more staff. This was not money going into enhanced student services but to bolster the personal pension accounts of managers.

We are now seeing the conflict plaguing all government organizations.   It is the choice between more services for students or more gold-plated benefits for management and staff. Being forced to cut back and create savings where do you think the money will come from, compensation packages or services.

It appears that the students and taxpayers of Ontario will lose on this one.

Bill Tufts
Fair Pensions For All

Is the Air Canada pension plan too rich?

In 2009 the Air Canada pension plans were short $2.9 billion despite the fact between 2004 and May 2009 the company had pumped $1.7 Billion into the plan. 

Now they are requesting money from Canadian taxpayers. With Ministers, high level officials senior government officials and Members of Parliament. All of whom have gold-plated pensions funded by you. 

What do you think their response was? I you know please send me an update.

See the video here.

The Conversation Continues

Bill Tufts 

Friday, March 18, 2011

Ontario Teacher's Pension to Hit the Wall in 2014.

From the archives a member of the Ontario Secoundary School Teachers Federation (thanks Joe)

Despite hefty contributions and huge asset accumulations there is a crisis and it will hit in 2014 with a vengeance!

Bill Tufts
Fair Pensions For All

Thursday, March 17, 2011

Working on pension issues

I have not had much time to be posting news to my blog. Does someone want a job? 

It is a very sad week for me as my brothers wife passed away unexpectedly yesterday. She was the mother of 5 boys. May she rest in peace and God be with my brother and his  family.

Pension News

It was a busy day today. I got a call for a CHML radio interview from an article written in the Hamilton Spectator. Then there were two other editorials, one in the National Post and one in the St John Telegraph Journal. Then just now another request for interview from a show in Halifax on the MLA pension issue in NB.

Here is a copy of a radio interview on a local radio station CHML 900 in Hamilton

There was a live radio interview the Rick Howe Show from Halifax.  It was on teh new New Brunswick pension proposal.

It was referred off this editorial in the St John Telegraph Journal

Also there was an editorial that was printed in the National Post.

Hamilton Spectator

Your keeping busy blogger 

Bill Tufts
Fair Pensions For All

Tuesday, March 15, 2011

UK pension comparison

Chart from Statscan 2007 Note: RRSP assets in Canada total about $700 Billion

I received an excellent analysis and comparison of pensions in Canada and the UK.

Bob Parsons had written to me in response to the blog I wrote about the Hutton pensions report that was released in the UK. There are big difference between the public sector plans in Canada and those in the UK.

The UK pensions are not pre-funded and are paid on a pay as you go basis. This has created huge problems for the UK as the economy has slowed down and there has been a choice to be made for politicians between services and the compensation packages of the public sector.

It feels like the taxpayers is losing as the public sector and politicians dictate where our tax dollars go. Most taxpayers feel it is going directly into the pockets of the elected officials and the civil service.

As I am doing some research for my book I ran across a report from the BNAC back in 2009 that provided a good comparison between the UK, USA and Canada. Basically all systems are in trouble and the UK is the worst off of all. British-North American Committee (BNAC) report

One of the reasons that the systems has gotten out of balance was described in this short editorial letter Market Balance Needed

On to Bob's letter. Thanks for sending this excellent letter Bob

After seeing the post you made on Lord Hutton’s pension report I became curious to find out what type of pension plan public servants in the UK have compared to our federal government pension plan.

I printed off the nuvos pension scheme guide pamphlet. Here are some of the things I discovered.

1. In the UK employees can opt out of their pension plan. We can not do this in Canada. (Section 5 Do I have to join nuvos?)

2. They only pay 3.5% we pay over 7% for superannuation and CPP which in my case last year was resulted in me paying  9.25%. (Section 9 How much do I pay?)

3. They build up pension value at 2.3% a year compared to our 2% for the Canadian Federal Government public employee pension plan. (Section 17. How do you work out my pension?)

4. They use the Retail Price Index which provides a much higher rate of increase than the Consumer Price index we use. (Section 18. Will the pension I have build up in value?)

5. They can earn a pension up to 75% of base salary while we can only earn up to 70%. (Section 21 Is there any limit to the size of my pension?)

6. They base their pension the highest of
a) Your pensionable earnings in your final year, or
b) your highest pensionable earnings in any of the last 10 scheme years: or
c) your highest average of three consecutive years’ pensionable earnings.

Ours is based on the best 5 years. (Section 21 Is there any limit tp the size of my pension?)

7. They allow you to take part of your pension as a tax free lump sum. We can not do this (Section 22 Can I take a tax-free lump sum?)

8. They are allow to collect their pension while continuing to work, although you have to 75 to do this. We can not do this. (Section 29 What if I want to work beyond my pension age?)

Even with Lord Huttons recommended increase in contributions for employees they will be paying far less than we are here in Canada.

Some other factors you have to take into account is that we have started to fund our pension plan since 2000. We have build up net assets of over $50 billion. The fund has being growing at a rate almost twice as much as the federal government is paying for public service pensions on an annual basis. I believe the UK is still a pay as you go scheme. So we are in much better shape.

In 2009 federal government paid 1.01% of total government expenditures on public sector pensions. (Public Accounts 2009, Public Service Pension Plan Report 2009). In terms of GDP it is below .2% of GDP. Your colleague Leo over at Pension Pulse ran an interesting article on the UK public servant pension plan. He showed a graph that showed that their public sector pensions were more than 1.6% of their GDP which is more than 8 times ours.

I had a quick look at several US state public servant pension plans. They have costs between 3 to over 6% of total expenses. In many states employees do not pay anything toward their pension costs and in the ones that do I could not find any that contribute anywhere near as much as we do. Even Scott Walker is not asking his employees to contribute anywhere as much as federal employees in Canada have to pay.  In every state I looked at they do not collect full income taxes on pensions, must do not collect any.

I read your proposed solution, which is to copy the US federal employee pension plan, which is based on three elements. The first is an indexed defined benefit pension plan which is I think based on 1.1% of earned income each year. The second element is Social Security which is also an indexed defined benefit plan. The third element is a defined contribution plan in which the US government matches employee contributions up to a certain level. To be fair to public servants in Canada you need to increase the first element to make up for the fact that Social Security pays far more than CPP if you want to have equivalent pension plans in both countries.

The bottom line is that public employees in the UK currently get one hell of a better pension for 3.5% of their pay than we do here in Canada. Our pensions also pale in comparison to those at the state and federal level in the US. We pay a lot more for less pension benefits.

Bill Tufts
Fair Pensions For All

Monday, March 14, 2011

Net worth continues to climb - but for whom?

There was an article today in the Globe and Mail that shows that Canadians are still in deep trouble on household debt
 Net worth continues to climb
Wealth in Canada continues to rebound from the great crash. 

Overall household net worth increased 2.2 per in the fourth quarter to $6.2-trillion, following on the third quarter's 3-per-cent climb, Statistics Canada said today. 

On a per capita basis, that's an increase to $181,700 from $178,200.
"The gain in the Standard and Poor's/Toronto Stock Exchange composite index of about 9 per cent in the fourth quarter was reflected in rising values of household equities (including mutual funds) and pension assets, albeit at a slower pace than the previous quarter," the statistics gathering agency said.
This is good news for those Canadian who has some savings and pensions but for the great unwashed masses this really means nothing. 
The last Statscan report on Inequality in wealth shows some pretty grim statistics. Although the numbers were from 2005 not too many Canadians who has seen much of an increase in their personal wealth. The trend is the wealthy continue to get wealthier and the rest... well not as well. 
  • Between 1999 and 2005, the median net worth of families in the top fifth of the wealth distribution increased by 19%, while the net worth of their counterparts in the bottom fifth remained virtually unchanged.
  • As a result, the top 20% of families held 75% of total household wealth in 2005, compared to 73% in 1999 and 69% in 1984.
  • Part of the growth in net worth among families in the top 20% of the distribution was fuelled by increases in the value of housing.
    • In both 1999 and 2005, the vast majority of these families (at least 95%) owned a house. During the six-year period, the median value of their principal residence rose a solid $75,000, reflecting sharp increases in housing prices.
    • In contrast, the value of holdings on a principal residence changed little among families in the bottom 20%. At most, 6% of these families owned a house during this time.
    Here is a chart from Statscan chowing that the top 10% of Canadians control almost 60% of the total wealth of the country.  I am afraid that this will part of the reason for social unrest in North America.

    Maybe this is what Michael Moore was ranting about in this video from the Wisconsin protests.  Michael Moore says 400 Americans have more wealth  Please listen to Part 2 of the video as well, it comes on automatically.

    Here he is interviewed in a very interesting video on The Rachel Maddow Show. Last Saturday there were in excess of 100,000 protesters in attendance at the Capital Hill in Wisconsin 

    As we do research for our upcoming book there are more and more instances of commentators suggesting a complete meltdown of our economy. One similar to what has happened in Japan. But the chances are we will not be able to borrow to the extent of 200% of GDP that Japan has. Japan has borrowed this money to sustain their standard of living.

    The Japanese stock market is down 75% since it's highs in 1989 

    Hang the rich: Great war inevitable, pundit predicts

    Richard Worzel - Revolting Civil Servants

    Stephen Gray  -Are we seeing political treason?

    Bill Tufts 

    Fair Pensions For All

Friday, March 11, 2011

Landmark Report on Public Sector Pensions

In the UK a special report on pensions looking into the sustainability of public sector pensions has been released. 

Lord Hutton a former Labor minister in the UK released the report that shows that the current system of public sector employees pensions is not fair to taxpayers or adequate for employees in its current form. 

He is urging that profound changes be made to the system for it to be sustainable in the long-term.  His point of view is that we cannot continue on as were are and major changes are required.

The UK has a pension system that is very similar to the one that Canada has for its public sector employees. It is based on the same plan design and very similar pension formulas. The report would be the star of a good road map towards changes here as well.

Hutton examined whether the current system is fair to employees and fair to taxpayers. What he discovered is that taxpayers are responsible for most of the future risk associated with these types of plans. These risk include investment; inflation; salary; and longevity risk.

There are also several gaps in fairness between what the public sector gets in pensions and what government workers get or should I say don't get. 

The two major recommendations were made in the report.
·         The public sector should move from a final salary pension scheme to one that is based on a career average
·         The age of retirement should be the same for all taxpayers both in the private sector and the public sector.

The UK has seen a similar trend in pension coverage. In 1997 about 30% of employees had access to a DB plan with overall coverage including DC edging 50%. By 2010 those numbers had dropped dramatically with only about 10% of employees in DB plans and overall coverage about 35% including DC plans.

About 80% of the public sector in the UK has a defined benefit final salary pension plan.  

The report outlined several key principles along with extensive discussion on each of the main points.

Affordable and sustainable - As employees get closer to retirement age their wages rise dramatically and the value of their pensions do as well. A greater cost falls onto taxpayers as the wage levels rise 
In final salary schemes, members will have paid contributions to the scheme based on something similar to their average salary, but will receive benefits based on their final salary. Taxpayers will pick up the cost of the difference between average and final salaries and members will benefit where final salaries are higher than average salaries. This effect will be particularly visible where people have experienced rapid salary growth. In average salary schemes, members bear more of the risk – salary levels throughout a member’s career will determine their income at retirement as well as their contributions to the scheme.
Adequate and Fair - There is a big gap between those at lower pension wage level in the public sector and those at higher levels. This is unfair because high income employee receive almost twice the value of their contributions than lower income employees do.
The report points out the there are many risks associated with pensions over the long term including investment risk, inflation risk, salary risk and longevity. The current system puts most of the risk on taxpayers for future funding .

Supporting productivity:- It is interesting that the report points out the "golden handcuffs" created by defined benefit plans prevents labour mobility within the economy. It recommends that more flexibility would be better for the economy
Supporting productivity:- It is interesting that the report points out the "golden handcuffs" created by defined benefit plans prevents labour mobility within the economy. It recommends that more flexibility would be better for the economy

Transparent and simple: - The report complained that there is little transparency on the cot of PS pensions. that taxpayers have no way of estimated what the costs are associated with a PS pension.
Transparency and effective oversight of public service schemes is required for public service workers and taxpayers to have confidence in the system and improve the quality of debate about the future of public service pensions.
This report is the basis for a good formula that would make Canada's pension system fairer and more sustainable., as well.

Focusing on fairness there were many interesting observations made by Hutton.

The report points our the generational risk in the current DB plan. For example, as the real costs of DB plans become apparent the younger employees pick up more burden.

For example, the OMERS pension plan offered its members a multi-year contributions holiday. As well since the early 2000's contribution rates have doubled. The early members in the DB plan paid at the old rates but new members will be paying much higher rates for most of their careers.

The sustainability of the system was questioned. It recommended some sort of a cap on taxpayers contributions into the plans. For example in Ontario the cost of taxpayers contributions into it's biggest 3 plans has grown by 400% over the past decade. At the same time pension plan shortfalls have not diminished. OMERS is on it's way to projected $8 Billion shortfall and Ontario Teachers is still sitting on a $17 Billion shortfall. 

The Commission recommends that public service employers take greater account of public service pensions when constructing remuneration packages and designing workforce strategies. to accrue further benefits in the present schemes for many decades would be unfair and inequitable to the new members coming behind them.

There is clear evidence that the administration of pension schemes can benefit from
economies of scale, particularly where existing schemes are below 100,000 members.

This bodes well for the creation of Canada's new PRPP. The report shows that the costs of administering a plan can drop to one-quarter the costs when comparing administration costs at small plans and large plans 
One of the complaints that Hutton has was that during his investigation he found that there are big gaps in transparency and a lot more needs to be know about public sector pension plans. In this way both the employees and taxpayers can have confidence in the system.

There should be a fairer sharing of risk between government (and ultimately
taxpayers) and scheme members.

In a recent OMERS report they highlighted the value of a employee pension.

A member who retires at age 60 with 32 years of service and “best five” salary of $48,000. Total contribution of $50,000 was matched by employer. Total payment to member and surviving spouse, including inflation, is $960,000

Part of the report included benchmarking the UK against other systems in the world. The BBC summarized a few of these plans and they provide an interesting analysis.

Public pension schemes elsewhere

  • ·         France: Public sector workers typically retire before 60, but there are plans to bring them in line with the private sector, who by 2012 will need 41 years of contributions with benefits based on the best 25 years' salary. There are also plans to raise the retirement age from 60 to 62.
  • ·         Sweden: Payments are based on earnings across the career not just the final salary, with an automatic link between benefits and life expectancy.
  • ·         Netherlands: Private and public sector schemes are similar, each with defined benefits. Dutch typically pay 1.75%-2% of earnings for each year of contributions.
  • ·         Chile: Mandatory defined-contributions in public and private sectors. Employees pay 10% of their earnings, with top-up benefits for the poorest 60% of pensioners.
  • ·                 Greece: Retirement age raised from 60 to 65, and minimum contributory                   period on full benefit up from 37 years to 40 by 2015.
 Here is an excellent interview in video on the BBC with Hutton. Here what he says about the issue

Bill Tufts 
Fair Pensions For All

Tuesday, March 8, 2011

Tuitions rising over the cost of sky high salaries

 This picture is the scene in Thunder Bay over rising tuitions.

I have been very busy the past few weeks writing with Lee Fairbanks our upcoming book on pensions. Our deadline for completion of the original manuscript is April 1st. Therefore I have not had much time to devote to my blog.

There were a series of articles about education that caught my eye. All about rising salaries and compensation paid the staff at universities.

It highlights the cost to society of having a shadow workforce that gets high and a large benefits package but never has to show up for work. These are retired public sector employees.

Students were protesting over the rise in tuition at Lakehead University. There are some very interesting insights into the situation written by someone from the next generation. The very ones saddled by the cost of this shadow workforce, paid very handsomely by taxpayers and do not work.

                                       So what do we do now? 
                                       Board ignores alternatives to tuition hikes

                                       University faculty demand salaries, forcing tuition rates through the roof.

                                       No really... we are fairly paid ... except for that double a few years ago 
                                       From the same Victoria newspaper 

This all ties in very well with the excellent video on the sidebar with Bill Gates talking about the current challenges to education. I urge you to watch it.

Bill Tufts 
Fair Pensions For All