Pension Tsunami's Jack Dean on the Growing Wave of Public Pension Debt

Jack Dean of Pension Tsunami



Thanks Jack for all of your hard work towards this very important issue. It looks like we still have a long way to go.


"The whole idea of the pension was to provide public servants with a decent retirement," says Dean.  "It wasn't to make them wealthy, to allow them to retire younger and with more money and be able to go off and play golf while the rest of us supported them.".


Bill Tufts
Fair Pensions For All

The Private Sector and Public Sector Wage Gap

It is alarming in economic times like these that government employees continue to get bigger salaries, bigger benefits and bigger gold-plated pensions than the private sector.

The Wall Street Journal highlights this gap in an article  The Government Pay Bonus. They point out that private employees toil 13½ months to earn what federal workers do in 12:

Pay cuts, layoffs and the highest unemployment rates in decades have reignited a debate over the relative treatment of public and private workers. USA Today reported in March that federal workers earn substantially higher wages than private sector employees who work the same types of jobs.
Nevertheless, salaries are only one part of total compensation. Government employees may also receive more generous health and pension benefits than Americans working for private enterprise. So are federal employees overpaid? Data from the March Current Population Survey (CPS) suggest they are.
Federal employment also carries significant nonfinancial benefits—in particular that layoffs and firings are much rarer. If you think these aspects of federal employment lack value, ask any private employee who is now looking for work. A federal pay premium is unfair both to private workers, who receive less than their government peers, and to taxpayers who must cover the difference. Given our 2.7 million-strong federal work force, the government effectively overbills Americans by almost $40 billion every year just on labor costs.
If Washington demands "painful sacrifices" to make these programs solvent, as the slogan goes, it must first re-establish its credibility. Giving federal workers salaries, benefits and terms of employment comparable to those received by private workers would be a good start.

 In Las Vegas they covered the topic with and article called Welcome to Planet Government where your servants are better paid than you 

“For years, most people who worked for state or local governments accepted a fact of life: Their pay wasn't great. The job security was.
“Now that's gone, too.”
What planet are they on?
The federal wage premium for workers who have the same education and experience stands at 24%, still a windfall for public employees.

“Even using all the standard controls — including race and gender, full- or part-time work, firm size, marital status, region, residence in a city or suburb, and more — the federal wage premium does not disappear. It stubbornly hovers around 12%, meaning private employees must work 13 1/2 months to earn what comparable federal workers make in 12.”

 Of course this is countered by the public sector unions who claim that the gap can be explained. The Canadian Congress of Labour try to explain the gap: 

In its study, the CFIB does not take into consideration factors that explain wage disparities that are known contributors to wage gaps. Such as the level of education of employees, size of employers and presence of a union, job tenure and previous work experience of employees, real working hours and the impact of pay equity

The argument is logical until the actual facts are examined. The union OPSEU did an actual study and the results they found were:

• Roughly 35% of respondents plan to retire within the next ten years. 

• 81% of respondents have an annual income at or above the average income in the general population (which is $39,386). 37% of respondents have an annual income of $60,000 or higher.

• 42% of respondents have college-level credentials, 30% have university undergraduate-level credentials, and 10% have graduate-level credentials.

 The News.Scotsman reported on the problem there. Yes it is the same in Europe as it is in the USA as it is in Canada. The only difference is that in Canada politicians are still too afraid to upset their biggest voting block. elsewhere around the world it is unavoidable. The day is coming where it will be necessary in Canada to end this travesty. 

Politicians and campaigners called for the state sector to take its "share of the pain" after research showed it enjoyed vastly better pay and benefits packages compared to the rest of the economy.

The report also said that public-sector workers enjoy better pensions, shorter hours and earlier retirement than those employed in private industry.
Private-sector employees work 23 per cent longer – the equivalent to an extra nine years and ten weeks

 The CFIB - Canadian Federation of Independent Business has consistently brought attention to this problem. Recently they called for more public discussion of this issue and said it is Time to get really big elephant out of Canada's living room

Add benefits, such as pension contributions, and the gap increases to a shocking 42 per cent. Imagine the public sector howling if these differences were reversed.

Think this only happens in Ottawa? Not so: provincial and municipal wage discrepancies exist, too. In Vancouver, municipal employees get paid 11 per cent more than equivalent jobs in the private sector. Add in benefits and the premium jumps to 35 per cent.
Now you know why your property taxes are so high.Not surprisingly, those in the public sector retire earlier, too -- at an average age of 59, compared with 62 in the private sector and 65 for the self-employed.

How is this even remotely fair when it is the private sector that takes the risks that generate the wealth to pay for these bloated public-sector wages and benefits?

Canada is in big trouble. Its too bad that our politicians and public sector employees don't realize it yet.

Bill Tufts 

Fair Pensions For All 

Government in business to pay biggest expenses - Employees

There is a race on in our society to pillage the wealth of our nations.

We have seen the problems that Legacy Costs have created in our society. They have the potential to divide society between the haves and the have-nots.

A system where a few have a lot and the majority have - or will have - very little indeed....The difference-maker in our futures, says Bill Tufts, is going to be our pension plans. Public or private. Gold-plated pensions versus pensions that might not even hold a coat of yellow paint. ROY MacGREGOR - Globe and Mail.

Hole to Fill 
One interesting situation is occurring in England where two companies begun giving the assets of the company to employees. They have given the assets to their employees to fund pension plan liabilities. Pension plan holes to fill.

These are assets that did belong to the shareholders of the companies but are now being diverted in what Peter Drucker called the "Pension Fund Revolution". It is a form of socialism whereby pension funds control and own most of societies assets and equities. Drucker predicted that by 1985 pension funds would own, in America half of the equity capital on American corporations.

I have covered pension socialism in some of my blogs.

Government's Biggest Expense 
The biggest expense of any government organization is the compensation costs of the public sector employees. It is the commitment made to these employees after they retire that are know as legacy costs. 

Many government organization are top heavy with older baby boomers at the cusp of retirement. Having made gold-plated commitments to these employees, many organization are finding themselves short. This will put huge pressure on increased revenues for these organizations. 

Revenues to a government employee, taxes to us. 

Ontario's Power Trip: The 20% Hydro Grab
The National Post has been running an excellent series on Hydro electricity in Ontario, The author of the series is Parker Gallant. He recently reported on the anticipated 20% increase in hydro costs in Ontario.

In past articles on Hydro Ontario, Parker pointed out the huge cost of employees at Ontario's Hydro organizations.

These organizations have huge legacy costs. Part of the reason is the high compensation paid to employees. Parker covered some of the issues surrounding the compensation at the hydro monopolies. Ontario's power trip: Priced out of the market

Now we see hydro rates in Ontario will be rising by 20%.

Legacy costs
The hydro business in Ontario, all government owned have thousands of employees who are earning in excess of $100,000 per year. Of course most will be entitled to a gold-plated pension as well. On valued at 70% of their earnings. This means at retirement each employee needs in the pension pot close to $1 Million.

It is impossible to fund all of these obligations there fore the taxpayers have pension and future benefits liabilities in these electric monopolies.

OPG, Ontario Power Generation has accumulated $8 Billion into it pension plan for retiring workers. Last year the employees contributed 23% of required pension contributions or $75 million into the pension plan compared to taxpayer's contribution of $ 254 million. 

Currently there is a liability for future employee benefits of $1.5 Billion. If the plan were to wind-up tomorrow or convert to a defined benefit plan there is a $2.8 Billion liability.
OPG Financial Statement - See note 12 for pension and benefit liability details.

For taxpayers the OPG returned a profit of $ 88 million.

It has become apparent that the number one concern of a generation of soon to be retired baby boomers is the commitment taxpayers have made to their legacy costs. The focus of these government operation now is not how to make our society better, or how to make our economy more competitive. It is how can we get more revenue to make sure that the gold-plated legacy costs of the public sector is covered.

Bill Tufts
Fair Pensions For All

Ontario for Sale ...

Yesterday Christina Blizzard from the Toronto Star reported on the sale of what is called Supercorp. It is an amalgamation of LCBO, Ontario Power Generation, Hydro One and the Ontario Lottery and Gaming Corporation. Liberals may pawn crown jewels

Combined these organizations are a large part of the economy of Ontario. Ontario Lottery is on track for $2 Billion in revenues this year. LCBO will be in excess of $4.5 Billion and OPG is on line for about $5.6 Billion in sales.

Monopoly Businesses  
These businesses should be very profitable for Ontario taxpayers because they are in highly regulated monopoly industries. They can dictate their own prices and profits. For example, OPG had a drop in electricity sales of 15% last year. This year they will be raising electricity rates in Ontario 20%. You can bet your ass...ets that if consumptions comes back rates will not go down.

The biggest expenses of all these organizations are the costs of their compensation packages. This includes salaries, benefits and of course gold-plated pensions.

Bright idea
Now the Ontario government wants to liquidate these assets for some quick cash.

Who will buy? Blizzard knows the implications

The only big investors with enough cash are public sector pension funds, such as Ontario Teachers’ Pension Plan and OMERS, the municipal employees’ plan.
Do you really want pension funds running monopolies? Since half the money that goes into those funds comes from taxpayers, aren’t we buying back assets we once owned — with our own money? Taxpayers put money into the pension funds. The funds then turn around and buy liquor stores, casinos and power companies with our money

 The Toronto Star reports:

McGuinty’s government is facing a $19.7 billion deficit this year. If the super corporation is worth $60 billion, selling a 20 per cent share could yield $12 billion from institutional investors such as the Ontario Teachers’ Pension Plan.

One bonus to all this is that McGuinty will have the cash to eliminate the pension shortfalls at Ontario Teachers. They will be able to use the cash they garner from the sale to fully fund the $17 Billion Shortfall at the teachers pension plan.

Imagine that, just before an election.

Bill Tufts
Fair Pensions For All

Bankruptcy - Coming to a City near you

Many US cities are starting to look a bankruptcy as an option to deal with the crushing weight of the cost of pensions, benefits and wages for city employees.

In America's 7 junkiest cities CNN highlights

cities' operating expenses continue to soar; pension and debt payments don't go away. And as their credit gets worse, the cost of borrowing for municipal projects -- such as sewer plants and roads -- just gets more expensive.

"The fiscal stress is severe in cities around the country, and it's likely to stick around for at least a couple of more years," 

The first major city in the US to go bankrupt was the City of Vallejo in California.

In 2008, Vallejo, Calif., was nearly broke. Faced with falling tax revenues, rising pension costs, and unmovable public-employee unions, the city was unable to pay its bills and declared bankruptcy

Like other municipalities, its public-sector unions had driven its budget deep into the red. A report issued by the Cato Institute last September noted that 74% of the city's general budget was eaten up by police and firefighter salaries and overtime along with pension obligations. The average city in the state spends 60% of its budget on those things.

lavish pay and benefit packages were a root cause of the city's problems. In Vallejo compensation packages for police captains top $300,000 a year and average $171,000 a year for firefighters. Regular public employees in the city can retire at age 55 with 81% of their final year's pay guaranteed. Police and fire officials can retire at age 50 with a pension that pays them 90% of their final year's salary every year for life and the lives of their spouses.

It was thought that going into bankruptcy was a way to get out from under the stranglehold that the public sector unions had on the city and taxpayers in Vallejo.

The city found out it was not that easy. The city has also cut funding for a senior center, youth groups, and arts organizations and has done little to restore an increasingly decrepit downtown, develop waterfront properties, or attract new businesses.
But when it came to voiding those contracts on pensions—a major driver of public expenses—the city blinked. The "workout plan" the city approved in December calls for cuts in services, staff and even some benefits, such as health benefits for retirees. However, it does not touch public-employee pensions. Indeed, it increases the pension contributions the city pays.  

Vallejo turned out to be a test case for many American cities. Now 2 years later many cities are finding the crush of the employee compensation packages unbearable.

In R.I. an receiver was appointed to look into the finances of Central Falls.Once again a major factor has been the high cost of pensions for its city workers. Now both San Diego and Sacramento are looking at bankruptcy as an option to end its fiscal pain. 

We have followed for a long time the outrageous concessions that have been given to city workers. They include platinum pensions and gold-plated benefits but now it seems that the breaking point has been reached. Taxpayers are on the hook and public sector unions will not budge even if it means bankruptcy.

Epic Battle 
Now the battle for unions to preserve their entitlements has begun. It appears bankruptcy may be no solution.

That leaves bankruptcy as probably the most effective tool in the drawer for lowering pension obligations. But if officials are unwilling to demand pension concessions in bankruptcy, there will be few choices left to balance their budgets other than support from the state that itself is facing steep budget deficits, or local tax hikes that could undermine local economies and thereby drive down tax revenues over the long term. That's a sobering thought in what is an already struggling economy, and an argument for government officials to be much more stingy in granting pension increases in the first place.Greenhut

Talk of municipal bankruptcy has not escaped California's politically powerful public employee unions. A number of them are pressing the legislature to pass a bill that would require local governments to get the approval of a state board before filing for bankruptcy. Since the board could be stacked with union-friendly appointees, bankruptcy pleas could be rejected or delayed.Rueters

It will be interesting to watch this battle between public sector unions and taxpayers. But I think I know who is going to lose.

Bill Tufts
Fair PensionsFor All

Canada's faltering demographics

An interesting article from the Okanagan gives us a preview of Canada's future.

The Okanagan valley located in British Columbia is Canada's retirement haven. More than a quarter of the population in the valley is retired. They have pensions or retirement funds as their main source of income. Region feels strain of demographic shift

This article was based on an analysis by Michael Brydon who is a director with the Regional District of Okanagan-Similkameen.

Brydon highlights that: 

unearthing an “empirically untrue” general assumption regarding the Okanagan-Similkameen’s economy: that it is based on agriculture and tourism. Brydon found that pensions and investments account for more than a third (33%) of the income in the district while the combined wage income from farming, accommodation and food services was no more than 6.5 per cent of the regional total.

The implications of this are staggering. This is the future face of Canada.

This analysis brings into question the issues of the sustainability of our whole society. How can we as a society support ourselves when the production of society is less than our consumption?

My question is based on the premise that those in retirement do not add any value to society but are consumers of society. They do not add anything to generate wealth but consume wealth. They consume recreation, long-term care, hospital services and prescription drugs.

The products and services that our retired population consume are one time items that add no long term value to our society, the capital stock of our society.

The article points out:

“If you go back to the 1950s and ‘60s there was huge public investment in elementary schools. Then 15 years later there was huge investment in universities ... Then the baby boomers went kind of quiet for a couple years but now we are getting back to a situation where public investment is required again.
“We know it’s coming. The question is: How do we plan for it?”

The most popular blogs I have written shows the serious state of Canada's demographics.
Tales from the other side of the aging catastrophe

Thank God we have saved some money into our pensions. It is this capital that will be save over the next 20 years. Lets hope we have saved enough!

Bill Tufts
http://fairpensionsforall.blogspot.com/

An Epic Pension Struggle

St John N.B has been having problems with its pension plan for several years. You would think that a problem like this would be easy to solve but it has proven very stubborn and expensive for taxpayers.

This case shows the fundamental problems with a system where politicians negotiate with public sector employees using taxpayers money. It is always the taxpayers who are getting the shaft.  

Mayor, city manager say changes necessary for long-term sustainability of plan

No matter how good the fund's investment returns are doing this year, city officials seem determined to reform the municipal employees' pension plan that's already sucked an extra $20 million from taxpayers.

 "Everybody knows this is important, from present employees to past employees, for people who are on pensions and will seek them in the future," said Mayor Ivan Court, who is also chairman of the city's pension board of trustees. "It's a national and international problem. But it's something that has to be addressed and we're all working to reach that goal."

With the news earlier this week that the pension fund of the province's 49,000 civil servants has posted a healthy rate of return of 19.94 per cent - much higher than the four per cent target - there is speculation the city's plan has had a similar rebound. The markets are still jittery, but they are doing much better than they were a year ago, when pension funds around the world were hammered.

Without enough growth in Saint John's pension fund, provincial legislation forces city taxpayers to pick up the shortfall. City manager Patrick Woods warned earlier this year that without significant reform, $10 million extra could be charged in 2011, a huge burden for a small city. Over the last several years, about $20 million extra has already been charged.

This is pretty straight forward. The plan has a problem now lets fix it. But here is where it gets nasty for taxpayers. You would think that since they are the ones funding the plan they would have a say but no...

Court, (the mayor) however, wouldn't reveal the municipal fund's latest figures, saying there was still a media blackout on such information until all the parties involved agree to a series of reforms. A special committee, which includes representatives from common council, civic unions, the city's managerial and professional staff, and retirees, has been meeting regularly for the past few months to come up with a reform package.

You can see how bad the shafting is going to be. The city sets up a committee to examine the issue and only include employees and ex-employees who will be benefiting from the plan. Of course they will inform the taxpayers when they have received a satisfactory agreement.

Let me see. The taxpayer is funding the pension plan. City managers who benefit from the plan sit down with city union members who are on the plan to make a deal?

Cuidado 

This is the Spanish word for careful!!!

This whole affair started a couple of years ago when a city councilor, Ferguson uncovered the huge problems with the city pension plan. He spoke out against the situation. Then same team decided that they did not like what the councilor said and decided to sue him. Ferguson wins latest skirmish with pension board.Ferguson ended up mortgaging his house to pay for the lawsuit. As far as I know three years later the case is still before the court. Of course if Ferguson wins the city (taxpayers) will have to ante up for damages.

This situation has provided me with lots of amusement and has been very typical of public sector plans. The only difference here is we have a newspaper not afraid to cover the issues. There is a list of interesting article pertaining to the case. All demonstrating the inherent conflicts of interest that benefit a small group of public employees at a huge expense to taxpayers.
Is the city solicitor in conflict of interest?  
Mayor could land in courtPension 
Two councillors qualifying for public pensions say they're not hypocrites

Pension Bid to draw newspaper into lawsuit turned down

City Manager writes himself juicy deal for retirement perks 

 You can see the twists and turns this case has taken and is still no closer to resolution. But the end is very predictable. Public sector employees aided by their union will hold taxpayers in St John hostage for millions of dollars. 

Bill Tufts - http://fairpensionsforall.blogspot.com/

Manitoba Taxpayers hit with triple whammy

.
The taxpayers in Manitoba will be paying dearly as a result of an agreement signed with the provinces nurses. Manitoba nurses to take 2-year pay 'pause'

The triple whammy comes as the provincial government gets its election campaign prepared for next year. An elections is scheduled for October 20100.

Public sector unions are always a huge threat to any government at election time and unions use this power to their advantage to negotiate new contracts. Finally, the pressures on heatlhcare spending costs in Canada are huge and increasing at an alarming rate. Workers in healthcare will be able to write their own tickets.

They three factors combined to give Manitoba nurses a pretty sweet deal. A government up for election, a powerful public sector union waiting one year for a contract settlement and third-party taxpayer's money to fund the party.

All this comes at the expense of taxpayers of course.

Gold Plated Pensions 

The nurses have what is  know as a gold-plated pensions. It is based on a formula of final salary. This means that they are ENTITLED to a pension worth 70% of their final salary, based on an average of past 5 working years. It is integrated with CPP so that combined with CPP the income replacement is 70%.

This year a nurse starts at $62,500 per year. A retiring nurse in Manitoba will earn in excess of $100,000 per year. What this means is a pension upwards of $70,000 per year. All guaranteed of course, guaranteed for life, for the life of a spouse, now guaranteed to increase every year (indexed) and best of all guaranteed by taxpayers.

Costly Pensions 

Gold-plated pensions of this nature are estimated to cost 34% of annual salary. Nurses pay about 25% of this cost on an annual basis, the taxpayers match that amount and future taxpayers pick up the shortfall. Because not even the annual costs are covered the HEPP, hospital workers pension plan in Manitoba, has a shortfall of $400 Million. HEPP annual Report - Page 17

So rather than wrestling this issue to the ground the Manitoba government like many before them has refused to deal gold-plated pensions. They have given into the pension demands of a powerful public sector union in hopes that it will bring them victory in the next election. Note: Someone had better check what other public sector contracts are due before October 2011.

Sadly, this process shows the dysfunctional nature of the system. Politicians using taxpayers money to favor a powerful voting block in contract negotiations.

My hope is that one day, somewhere one politician will stand up and say no more taxpayer abuse.

Bill Tufts
http://fairpensionsforall.blogspot.com/

N.B. Pension analyse shows Public - Private disparity

An interesting article about the stats of New Brunswick's pension plans shows the huge amounts that taxpayers have funded into these plans. It also shows how public sector employee groups expect taxpayers to continue the pension funding party.

It is a party that taxpayer fund but never attend!

N.B. pension funds bounce back

New Brunswick's 49,000 teachers, judges and civil servants can breathe a sigh of relief because their pension fund is back in the black.

But that doesn't mean the Liberal government's $749-million deficit will be any smaller this year.
That's a major improvement from 2008-09, when the pension funds lost $1.7 billion, or just over 18 per cent, in the global stock market meltdown.Sinclair said the annualized four-year return for the three funds is 1.77 per cent and since the inception of the New Brunswick Investment Management Corp. in 1996, the return is 6.5 per cent.

"Most importantly our annualized real return (after adjusting for inflation) since inception is 4.46 per cent, exceeding the target of four per cent set by the actuary," he said in a media release.

"These returns have been achieved in spite of the adverse effects of the prior year's global financial crisis."
Sinclair said unlike some pension funds, the corporation wasn't forced to sell holdings during the downturn to meet obligations to pensioners.

The corporation's net assets under management as of March 31 were $8.341 billion, up from $7.029 billion as of March 31, 2009.

The increase in net assets under management resulted from $1.384 billion in net investment valuation gains, plus $150 million in special funding payments from the province, less net pension payouts of $223 million.

The overall gross rate of return for the three funds was 19.94 per cent.

 These plans combined are almost a billion dollars short. The shortfall exists despite heavy duty contributions by taxpayers into the plan. 

Last year the employees in the pension plans contributed $111 Million and the taxpayers contributed $269 Million. The plan is still $ 750 Million short. Page 39 of a horrible report! 

The contributions work out so that the employees pays just a small portion of the total retirement funds required. Taxpayers pick up the rest!

The contributions for the general public service is 32.5 cents on the dollar for teachers it is 25 cents and for judges just 16 cents of every dollar required. CFIB calls for at least a 50% contribution

Already taxpayers have contributed the largest portion into these pension plans. The plans have $8.3 Billion in them for 49,000 workers. This works out to an average of $170,000 per worker. 

At the same time in New Brunswick taxpayers have an average of less than $ 40,000 in retirement vehicles. 

It looks like taxpayers in New Brunswick are getting the shaft!

Bill Tufts
http://fairpensionsforall.blogspot.com/

The best way to rob a bank is to own one!

Check out this excellent video from PBS
http://www.pbs.org/moyers/journal/04032009/watch.html
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Pension Apartheid

There was a recent election in the UK. One of the key election issues has been Pension Apartheid.

The Daily Mail in the UK reported that Pension Apartheid is:

The huge bill taxpayers face to pay for the pensions of the country's 5.8 million public sector workers. ...This means that public sector workers can retire relatively young on generous sums whereas private sector workers have to retire later and get less money.

 Canada is suffering Pension Apartheid as well.

Unfortunately in Canada no one has been able to put together the annual cost of public sector pensions. It must be staggering as cities, provinces, universities, hospitals and school boards all funnel tax dollars into the pension plans of public sector employees.

Statscan Pension Satellite Account
In a report from Statscan in 2007, the size of Canada's Pension Apartheid was reported. Canada's Pension Apartheid 

This is one of the graphs from this report. We can see that Canadians have funded billions of dollars into public sector plans at the expense of their own defined contribution plans or RRSP's. In fact, two of the bars in the chart show the public sector plans. 

The bar called Government Consolidated Revenue Arrangements is the pensions for high income earning public sector employees. Like the one recently uncovered for the retiring 47 year old Police Chief of Montreal. He is entitled to a $135,000 a year pension, a pension with a cash value of around $2.2 million. 

The Government Consolidated Revenue Arrangements are a form of taxpayer abuse. They have special rules which the public sector have created for taxpayer funded pensions, for themselves. Read the note on the table

These supplementary employee retirement plans were set up to provide pension benefits to (public sector) senior employees beyond the maximum permitted registered pension plan benefits as set out in the Income Tax Act.

 Total Contributions 
 The total value of pension assets in Canada, are covered in a confusing table produced by Statscan. Pension assets by type. 

There are about 3.6 million public sector employees. With $805 Billion public sector workers have an average of around $230,000. In the private sector there are about 13 million workers. They had a total of $1 Trillion in pensions and RRSP's. This means an average of $80,000 in retirement savings for private sector workers. 

For every 1 dollars that taxpayers have been able to save in their retirement pots they have funded the accumulation of 3 into public sector pensions. Several reports over the past month have shown us that many hundreds of billions more are required to bring public sector pensions up to full funding. 

Who is going to take the initiative to end this Pension Apartheid?

Pension reform coming together

Recently Johnathan Chevreau covered a report issued by one of Canada's self-regulatory financial organizations, IFIC. $ 1.7 Billion reasons

It is interesting to see how pension reform is all coming together.

The investment industry in Canada has been fighting the claim that the MER's they charge are too high. We know the impact of the these MER's on the long term value of retirement plans.

The gap between the haves and the have not's is too big in Canada to ignore.  The gap between the gold-plated public sector pensions and private sector taxpayers.

These principles are directing Canada towards some sort of pension changes.

The insurance industry and banks are fighting to keep control of the investment industry in Canada. It is their business and their bread and butter.

We have seen the implementation of the additional mandatory level of pensions in the UK. The Canadian insurance industry is touting a model based on the Kiwi Saver. It is know as a "soft" mandatory pension.
http://www.kiwisaver.govt.nz/

A Canuck Saver would be a similar program. It would have mandatory enrollment with an opt out option.  At the base level the employer, government and employee each put in a one-third contribution. Best of all the insurance industry and banks still manage the funds.

The Canadian insurance industry needs a model whereby they will continue to manage the funds. They are proposing to do it for under 100 BPS or 1%. This is a long way from the 2.5% they charge in MER's now. This means the advisors will be cut out of the commissions they receive today. Advisors will be forced to go to a fee for service model.

The model for additional retirement savings is based on a CPP type plan. Where the retirement income is Defined Benefit.The current level of coverage with the CPP is 25% replacement income up to the YMPE limits. The current discussions call for increasing the YMPE limit from around $47,000 to $100,000. Also an increase of replacement income up to 50% is being debated.

It will be hard to see how Canadian savers will find extra money for either of these options. For example, as a self-employed individual I contribute 9.9% of my income into the CPP. Both these options would double my contributions.

The government could give any increases to mandatory retirement savings to a large pension plan (OMERS, OTPP or the CPP) to manage but this would mean cutting out the current financial industry services. Of course IFIC wants to defend their turf. As well they should!

Politicians are aware that the financial services industry is the largest driver of GDP in the country. To upset the apple cart too much would be very dangerous. When looking at the country's GDP we see that Canada has a GDP of $1.2 Trillion.

Statscan GDP Table -www.statcan.gc.ca/.../t100430a1-eng.htm

Total GDP $ 1.2 Trillion - (based on this report, there are different ways of calculating GDP)
Financial Services - $ 256 Billion
Gov't (Public admin, Education, Health Care) - $ 217 Billion
Manufacturing - $158 Billion (down from $180B 2 years ago)
Oil, gas and mining - $51 Billion

Financial services and government administration have been the only two sectors growing over the past 2 years during the Great Recession. Financial services are essential to the future growth of our economy.

The public sector pension gap needs to be eliminated.
It is ridiculous to think that the average $157,000 that high income Canadians have in non-registered funds is adequate. If the $100,000 earner wanted a replacement income of  70% it would be gone in two years.
On the other hand a public sector employee earning $100,000 is  guaranteed 70% replacement income on his gold-plated pension, when fully qualified. This would means $60,000 per year coming from a public sector pension. CPP ($11,200) picks up the other 10%.

A private sector employee in order to generate a $60,000 a year pension would need a retirement pot of $960,000.

Canadians have diverted hundreds of billions of dollars into public sector plans. Statscan showed about $ 800 Billion in 2007. www.statcan.gc.ca/.../5213171-eng.htm

Lets put all Canadians public sector and private sector on the same retirement income level. A replacement income of 50% would be a good compromise between the 25% CPP pays and the 70% gold-plated plans public sector pension. Diverting some of the tens of billions Canadians currently fund into public sector plans would help provide a better retirement for all Canadians.

Keep watching!

 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...

	Public	Private
Earliest years of work to earn full pension:	30	Non-existant
Proportion of wages as pension: pension vs CPP	70 %	25 %
Contributions required for employees based on Salary* :	8.5%	9.9 %
Total accumulation in pension plans **	$805 B	$ 314 B
Pension increase 2010:	3 %	0.4 %
Average Ontario Teachers Pension vs. CPP	$40,000	$11,210
Average retirement age vs. self-employed	59	65
Percentage covered by gold-plated pensions	80%	18%
Minimum pension age:	50	60
* 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 http://www.statcan.gc.ca/pub/13-605-x/2008002/t/5213171-eng.htm

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. 

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.

BC school spending rises despite declining enrolment 

MB: Less Students, Skyrocketing Costs, Reform Needed

Where is all this money going?  

Like all government organizations the biggest single cost of education is the compensation package paid to the employee of the system.  In school boards across Canada 80% of all revenue coming in goes to the compensation package. 

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.

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  
  

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!

Forbes - Illinois Assembly overhauls state pension system 

New Jersey Transforms Public Sector Pensions 

California's $500-billion pension time bomb 

Only a brave few acknowledge an entitlement crisis - Problem is identical in Canada

 Ontario Teachers' Plan projects $17B shortfall

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

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?