The RRSP Credit Idea

This week there was a special session in the House of Commons to discuss pensions.

In preparation for that session some MP's were doing their homework on the issue. I will post my recommendations to one MP in an upcoming blog post.

This week as the discussions about CPP reform heated up The Current on CBC had an interesting series.You can listen to it here. Canada Pension Plan Reform

I will be visiting with Jack Dean of the Pension Tsunami in Los Angeles. Jack is a very interesting man and has his pulse on pension reform in the US. We always have an interesting conversation. I am sure I will have lots to report.

An idea was sent to me by Jack Ellefson of Calgary Alberta. It is a novel idea and one that I had not heard before. Please read it carefully because it contains some excellent ideas. 

Incentives for RRSP and Defined Contribution Pension Plans.

          Canadian pensions are commonly funded with annual contributions of 50% by the employer and 50% by the employee.  But the majority of municipal, provincial and federal employees have their Defined Benefit (DB) pension plans subsidized by their employers.  The civil servant  employer contribution amounts to 66 2/3%, with the employees share at  33 1/3%.  The  “pension adjustment” found on tax filing then allows the civil servant to place the additional 16 1/3% annual contribution into a self directed Registered Retirement Savings Plan (RRSP). Sovereign pensioners have well funded, secure, inflation protected pension  plans, plus the ability to enhance retirement by having the capacity to contribute to a self directed RRSP

            Private sector RRSP and Defined Contribution (DC) pensioners should be accorded similar retirement initiatives.  By following the very successful  Registered Education Savings Plan (RESP) for children’s education, whereby the government contributes directly into the RESP, proportional to the funds contributed.  RESPs receive up to a 20% grant on the first $2000 contribution to a child’s education fund , to a maximum of $400 per year.  A similar program should be put in place to enhance the contributions of RRSP and DC pension investors.

            A maximum RRSP contribution of $22,000 for say 30 years with compound growth at 5% would result in a retirement nest egg of $1.46 million dollars. (Similar growth is expected in DC pension plans, both of which upon retirement are  converted to a Registered Retirement Income Fund. (RRIF).

            Were the federal government to  enhance the individual’s annual contributions by

16 1/3% , to maximum of $4000 per year, the annual contribution would now be $26,000.  This annual contribution of $26,000 would compound to $1.73 million over 30 years at 5%.  But most importantly would provide that extra incentive for Canadians to plan early to develop their retirement savings.

            Federal subsidy to individual RRSPs and DC pension plans , would bring an element of fair treatment for retirement pensions  of all Canadians. RRSP incentives would not be available  to  taxpayers eligible for the “pension adjustment.”

            It is difficult  to estimate the cost of an RRSP incentive program.  The 2009 department of finance “tax expenditures” for RRSP contribution deductions was $7.85 billion. At a 30% tax rate it would imply about $26 billion annual contributions, which at a 16 1/3% incentive would cost about $4.25 billion. While this would be an expensive program, if it were as successful as the RESP incentive program, would foster growth of RRSP investing and would return ever larger amounts of tax payments as RRSPs are converted to Registered Retirement Income Funds (RRIF).

Bill Tufts 

Fair Pensions For All 

On the trail to Kananiskis

This is an important time for pension reform in Canada. 

Next month in Kananskis the finance ministers of Canada are getting together to develop a plan for improving Canada's retirement security system. One the table are two proposals, one to improve CPP and the other to add  an additional, or supplementary plan on top of the CPP. 

Organized Labour Plan

The public sector unions are in  support of boosting the CPP pension. They are correct that something needs to be done and this plan will be a bonanza for them. 

Public sector unions already have the advantage of being able to get full pensions, when qualified, as early as age 55.

The CLC has put together a good analysis of their position and the problems for Canadians on the CLC website. Retirement Security for Everyone . They have also provided a good overview of the statistics in each province.  What Do They Mean for each Province?

The key point for this initiative is that  the CPP changes public sector unions recommend will have a windfall effect on public sector pensions.  Public sector plans are currently integrated with CPP, their plan to double CPP will greatly reduce the pension shortfalls that many public sector face today. 
 
The first $11,200 of a defined benefit pension is paid by the CPP. The rest of the pensions is paid from the pension plan. Doubling CPP will mean that the first $22,400 of public sector pensions will be paid by CPP. 

For example, on a $70,000 a year public sector pension CPP pays $11,200 and the pension plan pays $58,800.  With a doubling of the CPP the $70k pension would need only $47,600 coming from the pension plan because CPP contributions would be $22,400 towards the pension,

The impact of a doubled CPP will save tens of Billions of dollars for public sector unions. This is especially important when many of these plans are serious underfunded. 

This concept of CPP integration is described in the article from CLC Time to double pension benefits is right now

In fact, the vast majority of workplace pensions are integrated with CPP, so any increase to CPP premiums will mean you pay less into your workplace pension. Therefore, you get the same pension income, just more of it from CPP. Labour's plan to double CPP benefits would raise the floor of our pension system from $11,000 per year to $22,000 per year. This benefits the 93 per cent of Canadians who are covered by the CPP. It also offers a source of retirement income that is portable across jobs, portable across provinces and territories, insured against inflation, and backed up by the government. 

Here is an interesting editorial from MP Chuck Strahl  describing how the CPP works in conjunction with public sector pensions.  Although he is discussing the current debate on veteran's pensions the same principle applies to all public sector pensions. Strahl defends party policies 

There is no pension clawback at age 65. The issue is that CF members may be eligible for a military pension before they are eligible for CPP. Because they are too young to qualify for CPP, veterans receive a "bridge benefit" for the years until they reach the pensionable age. The bridge benefit is later replaced with CPP.

There is a call for raising the age to qualify for CPP. Pension pay at 67 urged by think-tank Do not expect the public sector to participate in any reductions to the retirement age. They are happy with their early retirement plans. 
 

Raising the age for CPP pensions becomes a mute point for the public sector. They have this special rule that allows them to collect CPP (bridge benefit) regardless of the age they retire at. Through the bridge benefit the public sector accesses a taxpayer funded benefit identical to CPP, called a bridge benefit. The biggest retirement age in the public sector is age 55.

Note the average new federal employee retiree pension of $39,000 from last year. Although it is not clear in this report, they probably receive the bridge into CPP to give them a retiring income of in excess of $50,000 a year, in the first year.Report on the Public Service Pension Plan

Note from the CLC reports that total RRSP contributions for all Canadians last year were $33 Billion. This is very close to the $30 Billion taxpayers and employees into public sector pension plans last year. The only problem is that public sector pensions represent less than 20% of all workers in Canada. 

If all Canadians deposited what the public sector unions did into retirement funds then we would not have a retirement security problem. But then again most of the public sector deposits are from taxpayers.

Supplementary Plan

There is an alternative plan that is being suggested for retirement security reform. Any changes are designed to help the 70% of the private sector with no formal workplace pension plans. A supplementary plan is a top-up or add-on to the CPP plan. This style of plan has been implemented in many countries including New Zealand, Norway, Sweden and recently the UK. 

Keith Ambachtsheer is Canada's recognized pension guru. He has consulted on government pensions around the world and has led a large part of the discussion on pension reform in Canada. He provides good analysis in a recent editorial It’s time to choose the winning pension reform horse.

Insurance companies have yet to wade in and provide their opinion on pensions but the supplementary option is in their favor. They would maintain control of the management pensions with the supplementary pension system. Managing the retirement savings of Canadians is big business in Canada. 

The biggest complaint about Canada's private retirement savings system, mainly RRSP's, is the high cost of management fees associated with these plans. The CLC alludes to it in their proposal. However, I spoke with one senior Canadian insurance executive who indicated that large insurance companies have committed to managing these plans for .75 BPS, or less than 1%. The plans will be managed under huge savings programs managed much like insurance companies manage DB pension plans.

Life insurance and private investment management companies manage the supplementary system in New Zealand which is called the KIWI plan. It appears this is the way the UK NEST plan will be managed as well. 

Challenges

One of the major challenges to pension reform is the question, where will the money come from?

The public sector of course expects it to come from taxpayers and businesses. That is one reason they like the CPP option so much. It is funded 50/50 by workers and businesses.

The effect on small business in this country will be very harmful regardless of which option is chosen. They will be funding at least half of any pension reforms under both the current plans.

In the UK where the NEST plan is being rolled out there is a required employer contribution and business of course, get to pick up the administrative costs as well. Small businesses facing "extortionate" pension costs

A couple of articles have touched on the impact of these pension changes. Securing the future by expanding the Canada Pension Plan Mark Newton at Heenan Blaikie  points out that: 

Any type of Canada Pension Plan reform will have a potentially significant impact on employers and employees. Regardless of how the benefits are increased, more money will have to be pumped into the system by both employers and employees. The questions not addressed by the paper are where the money will come from and what the reaction might be, at a time when payroll and other taxes are already high.

For example, a possible reaction by some private sector employers to increases to the Canada Pension Plan might be to reduce contributions to other pension and retirement savings plans, so as to maintain existing payroll costs for pensions and benefits. This would defeat the government's stated objective of increasing retirement income levels. It could also further increase the disparity between public and private sector retirement benefits, insofar as public sector employers would continue to benefit from rich defined benefit pension plans, plus augmented Canada Pension Plan benefits.

 In the Wealthy Boomer Jonathan Chevreau wrote: 

By the way, raising the retirement age for CPP would shine the spotlight on public sector plans in a way they might not like.  The various pension plans for public sector employees generally allow early retirement on an unreduced pension at age 60 and even as early as age 55 if employees meet a service condition.

So consider the argument for increasing the CPP retirement age.  It goes like this:  “Canadians are living longer and so pensions are becoming more expensive.  Moreover, the ratio of retirees to workers is increasing, which puts a strain on the economy.  Raising the retirement age keeps Canadians in the workforce longer and makes their pensions more affordable.”

If this is the argument, however, how can public sector pensions justify heavily subsidized retirement at age 60 or even younger given that it is largely taxpayer money that makes this possible?  A higher CPP retirement age means this question will be asked more often.

Reform of public sector plans needs to be included in any discussions about changing Canada's pension system. The gap between public sector and private sector pensions is unfair. It is time for change.

Quote: Jack Dean, Pension Tsunami 

The whole idea of the pension was to provide public servants with a decent retirement when they left public service. It was not to enrich them or to make them wealthy, to allow them to retire younger, with more money, to go off and play golf while the rest of us supported them. This attitude is growing out there in the public. People are beginning to realize what has been done and they are not happy about it.

 Bill Tufts 
Fair Pensions For All

Unions gone Mad

Concern over public sector unions is being reflected across the country. The public sector is the only bastion of unions. Private sector unions are almost dead. It appears public sentiment is turning against the public sector ones.

A battle is beginning and it is tied into the gold-plated pension issue.  

The tide has turned in Toronto with the election of a mayor who had a slogan of respect for taxpayers. Is the rest of the country far behind? It will be very interesting the see the effects of the US election! 

The battle will be a doozy. Are you ready? 

Election Season  

For the first time since the Great Recession voters have had a chance to send politicians their thoughts and anger. Municipal elections across Ontario tossed incumbent mayors. Gwyn Morgan has shed light on some of the reasons behind the election results. 

He wrote an article today in the Globe and Mail.  Toronto election offers chance to reform public sector 

The article also offers some suggestions to get fiscal control back in Canada and to offer taxpayers some respect. 

End union powers that hold citizens hostage: Turn important unionized monopoly public services into “essential services” in which strikes are forbidden. Insist that essential service union contracts reflect private sector competitive rates. Back that up with severe penalties for unions and union leaders who advocate illegal strikes, and the right to fire workers who strike illegally.

End compulsory union membership: Current laws force those seeking jobs in unionized workplaces to join the union. There should be an end to laws that deprive individuals of the right to work outside a union. This bridge has already been crossed; for example, 22 American states prohibit agreements between unions and employers that make membership and payment of union dues a condition of employment.

 Union membership is dying in the private sector. 
It appears that the only major remaining support for unions is in the public sector. In Canada not many  private sector workers are unionized. On the other had the public sector's 3.6 million workers are almost all unionized. 

There are only 4.4 million union workers in Canada. Statscan - Union Membership in Canada 

 

US Election 

Unions members in the US are running scared. They are afraid that electing fiscally responsible politicians will hurt them in the pocketbook. 

The highlighting of election spending by unions has forced the spotlight upon them. In this electoral season they will be by far the biggest spenders in the current elections. 

It has not helped that the media has covered the extent of their political contributions and the candidates they have gone to. This election should have been about the fraud taking place in corporate America but somehow it has turned on the public sector.  

Unions in the US have been estimated to  spent $87 million on the current election. This compares to an estimate of $30 million for the national Chambers of Commerce. Considering the rise of the Tea Party this spending creates a big risk for union backlash if the Republicans win. The ‘big dog’ in campaign spending

A columnist by the name of Jeff Jacoby has provided some excellent insights into the problem of public sector pensions in America. His excellent article What public-sector unions have wrought exposes some of these problems.

In the ensuing half-century, (since the '50's) the public sector in the United States has grown enormously. The number of government employees at all levels surged from about 8.2 million in 1959 to 22.5 million in 2009. Historically, government work paid less than comparable employment in the private economy, but greater job security and good pensions compensated for the lower wages. No longer: now government workers tend to fare better than private-sector workers across the board—not only in job security and pensions but in wages and other benefits as well. 

Nationwide, according to BLS data for 2009, state and local government employees were paid an average wage of $26.01 per hour, which was 34 percent higher than the average private-sector wage of $19.39 per hour. Even more lopsided was the public-sector advantage in fringe benefits, such as health and life insurance, paid vacations and sick leave, and—above all—retirement income: state and local governments provided their workers with benefits valued, on average, at $13.65 per hour, a 70 percent premium over the average benefits package in the private sector. In addition to being more expensive, the benefits that come with government jobs are provided to more employees. Life insurance, for example, was offered to 80 percent of employees working for the government but to just 59 percent of workers in the private sector. Traditional defined-benefit pension plans were available to 84 percent of government workers—but to only 21 percent of private employees.  

In 2008, the 1.9 million civilians employed by Uncle Sam were paid, on average, an annual salary of $79,197, according to the Commerce Department's Bureau of Economic Analysis. The average private employee earned just $49,935. The difference between them came to more than $29,000 -- a disparity that has more than doubled since 2000. Add benefits to the mix and the federal advantage is even more striking. Total federal civilian compensation in 2008 averaged $119,982—more than twice the $59,908 in wages and benefits earned by the average private-sector employee. Edwards has tracked the inexorable widening of that gap: federal employees in 1960 averaged $1.24 for every $1 earned by an American in the private sector. By 1980, that $1.24 had grown to $1.51; in 2000 it was up to $1.66. Now it is $2—and climbing.  

IT IS NOT by happenstance that the growth in public-sector union jobs—from a trivial share of overall union membership 50 years ago to a majority today—has coincided with so vast an expansion of government and of its employees' pay and perquisites. As FDR had foreseen, there are crucial differences between collective bargaining in the public and private sectors. Labor unions negotiating on behalf of government employees enjoy at least four potent advantages, which they long ago learned to exploit.  

First, unlike their counterparts in the private sector, government unions are largely free from market discipline. Unions operating in the private economy know that there are limits to the demands they can make of an employer; private firms have to earn a profit to stay alive, and competition swiftly punishes those that fail to control cost and quality.  

A second advantage lies in the difference between public- and private-sector strikes. In business, a strike (or the threat of a strike) is an economic weapon that takes a toll on both sides: management suffers the loss of business, and labor must absorb the loss of wages. Consumers may experience some inconvenience, but they generally have the option of switching to another supplier or deferring their transaction to a later date. In the public sector, by contrast, strikes are political weapons. Because government services tend to be legal monopolies, a strike by police, garbage collectors, teachers, or air-traffic controllers inflicts pain on the public at large.   

A third advantage: in public-sector collective bargaining, labor and management frequently both stand to benefit from higher wages and more munificent retirement income. After taxpayer activists in California last year used the Freedom of Information Act to procure a list of government retirees receiving more than $100,000 annually in pension payments, the Sacramento Bee noticed who was on it:

Managers also dominate the $100,000 club list. These are the people who are supposed to represent the public when employee benefits are negotiated. But when government managers sit down with union leaders to dicker over compensation, they are negotiating for themselves as well. If rank-and-file workers get a wage or benefit boost, non-union managers get a commensurate hike and a matching pension benefit.

But a fourth advantage is more significant than any of these: government labor unions can reward politicians who give them what they want and punish those who don't. As a result, negotiations in the public sector have an inherent bias toward higher salaries, more lavish benefits, and more inflexible work rules. "This is because public unions can organize politically and influence elections,"

The whole of this article is worth reading and I urge you to do so. 

At the inception of unions in the 1930''s the danger of public sector unions was recognized. It was the president FDR who understood these dangers and in 1937 he stated

Danger of Public Sector Unions - FDR 1937 

"... Meticulous attention should be paid to the special relationships and obligations of public servants to the public itself and to the government. All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations ... The very nature and purposes of Government make it impossible for ... officials ... to bind the employer ... The employer is the whole people, who speak by means of laws enacted by their representatives ...

"Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of government employees. Upon employees in the federal service rests the obligation to serve the whole people ... This obligation is paramount ... A strike of public employees manifests nothing less than an intent ... to prevent or obstruct ... Government ... Such action, looking toward the paralysis of Government ... is unthinkable and intolerable.

Read the full article about his comments at FDR's warning: Public employee unions a no-no


Bill Tufts
Fair Pensions For All

Canada's Pension Options

It appears that most Canadians have recognized that Canada has a retirement crisis that needs to be fixed.

The debate is focused on two options. These are included in an article from the Globe and Mail entitled  Upgrades to Canada Pension Plan likely to miss fall deadline.

Governments consider ways to boost retirement savings
Option 1: Building on CPP; Option 2: setting up supplemental, private-sector-run plan
Federal and provincial officials are working on two options to encourage Canadians to save more for retirement. Finance Minister Jim Flaherty announced in June that a majority of provinces supported both of these options in principle.

Option 1: Enhancing the Canada Pension Plan in its current form. This option has the benefit of simplicity because the CPP already exists and has a solid reputation. Any increase in retirement benefits must be paid for by higher premiums. Several unions want benefits to double, but Mr. Flaherty has suggested the changes would be more modest. Alberta opposes this option, warning it will cost jobs and take away consumer choice.

Option 2: Creating a supplemental pension plan run by the private sector. This option aims to help workers who are self-employed or work for a small business that does not offer a company pension. The challenge with this option is that it does not currently exist, so private-sector firms will need to be found that are willing to run the system at low cost. Officials are also grappling with how to ensure there is proper oversight so that prices are fair for consumers. There is also a debate about whether companies of a certain size should be required to offer this on an “opt-out” basis to ensure the program has enough members.

  Yesterday the Globe and Mail updated the debate aver this issue in Pension reform won’t be easy, Jim Flaherty warns 

“This is not something that will happen quickly,” he said. “We have to first of all agree on where we’re going and make sure everybody’s happy with that. We already have at least one dissenting province and as you know there’s a quota rule in there, and I don’t know what the position of Quebec is.”

Reforming CPP requires the support of two-thirds of the provinces representing two-thirds of Canada’s population.

Alberta Finance Minister Ted Morton supports this private-sector option, but remains strongly opposed to enhancing the existing CPP.

Mr. Morton told The Globe’s editorial board earlier this month that he fails to understand why broad enhancements to CPP are on the table when several studies have shown the problem of insufficient retirement savings is primarily limited to middle-income earners who work for small private-sector employers.

“So why, when you have a fairly narrowly defined retirement-income problem that needs to be solved, why do you come in with a CPP hike that hits everybody?” he asked rhetorically. “And particularly, why do you do it when we’re trying to come out of a recession and job creation is probably the most important thing governments are doing. In the end, it’s a payroll tax.”

Canadian pension expert Keith Ambachtsheer, who warned in September that the talks have fallen behind schedule, has recently offered another update.

Mr. Ambachtsheer, the director of the Rotman International Centre for Pension Management, said opinion appears to be coalescing around the idea of paying for benefit enhancements for middle-income earners by increasing the Year’s Maximum Pension Earnings (YMPE), which is currently set at $47,200. Under that scenario, CPP premiums would not increase for those earning less than the maximum, but those earning above the YMPE would pay CPP premiums for a longer period until they hit the new maximum.

“And there are those who continue to argue that ‘don’t fix what isn’t broken,’ and that we should instead focus our attention fully on the ‘private pension innovation’ path,” writes Mr. Ambachtsheer.

“There is increasing recognition that even the ‘raise the YMPE’ path has considerable implementation challenges attached to it.” Questions remain, he said, over how high to raise the YMPE, how to integrate with current [defined benefit] plans, how to test and explain intergenerational fairness and how to deal with serious disappointment by many when they realize that, whatever is done, it will only have major impact decades from now.

The increased CPP program is endorsed by Canada's public sector labour unions who have already accumulated pensions worth in excess of $800 Billion. This contrasts with the CPP which has assets a little over $ 129 Billion. NUPGE - The top ten reasons to expand the Canada Pension Plan

 Expanding CPP will go a long way to improve the financial security of Canadian seniors.

Like all public programs and services, CPP is an important tie that binds us together as a nation. It is an expression of our collective commitment to one another and to the fundamental principle that all citizens have the right to income security and dignity.

We must seize the opportunity that exists today and demand that our political leaders across the country embrace this most sensible, affordable and effective approach to improving retirement security for all Canadians.

The Supplementary pension is one that has been implemented in other countries around the world. The UK is in the process of introducing the NEST program and New Zealand has plan called the Kiwi Saver. James Daw does a good job looking at some of the options available for the supplementary plan. Pension gap gets less air than long guns

Sweden, Norway, the United Kingdom and New Zealand — have done recently to promote increased savings at a reduced cost, and what Saskatchwan pioneered in 1986.

Sweden started in 2000 to require workers to contribute 2.5 per cent of pay to individual pension accounts to provide benefits beyond its public pension plan.

Norway opted to require employers to offer defined-contribution pension plans for employees, and contribute 2 per cent of pay on incomes up to about $150,000.

The United Kingdom is set to require anyone without an occupational pension plan to contribute 4 per cent of pay up to about $55,000 a year to individual pension accounts administered by the government starting in 2012. It will require employers to contribute 3 per cent of pay by 2017 and the state will contribute 1 per cent.

New Zealand, which had a more generous version of our tax-supported Old Age Security pension but nothing like our tax-deferred RRSPs, started a Kiwi Saver program in 2007.

Workers were enrolled automatically and, unless they opt to drop out within the first eight weeks, are to contribute 2 per cent of salary (or up to 8 per cent if they wish), while employers are to contribute 2 per cent by 2011. The government offered cash and tax incentives to promote savings, but these were reduced after a change of government.

Both plans will be a significant hike in payroll taxes for Canadian businesses. Will the cost outweigh the benefits of implementing either option?

What About the Public Sector?


It may appear surprising that the NUPGE (National Union of Public and General Employees) has anything to say about the pension issue. They have negotiated gold-plated pensions for their members at taxpayer's expense.

Public sector plans in Canada have accumulated $800 Billion in assets for the benefit of their members. And appear to be in the postion to pay out many multiples of what the average Canadian will get from the existing public CPP, OAS and GIS plans.

Ambachtsheer alludes to this in his comment

Questions remain, he said, over how high to raise the YMPE, how to integrate with current [defined benefit] plans, how to test and explain intergenerational fairness and how to deal with serious disappointment by many when they realize that, whatever is done, it will only have major impact decades from now.

He realizes that currently public sector pensions are designed to pay out 70% of retiring income. Of this a portion is covered by the CPP and the rest is picked up by the pension plan.  By doubling the amount paid by the CPP, shortfalls in public sector pension will be dramatically reduced or eliminated.

For example a government employee retiring on a $100,000 income will expect  a pension of $70,000 per year. The pension will be covered by CPP payments of $11,208 and the remaining $58,792 per year will be picked up by the pension funds. By doubling the CPP to $22,416 the pension only needs to cover $37,584.

In the above example the pension would need about $ 940,00 to cover the pension for the government employee. By doubling the CPP portion the amount required by the pension plan drops to $761,000, a difference of $179,000.

So you can see the motivation for the public sector to be behind this move.

The taxpayers is out of pocket for gold-plated pensions either with the status-quo or the supplementary plan. It is just that the supplementary plan is more politically expedient for the public sector pension plans. The shortfall is covered by CPP payments rather than the unions having to fight government to cover pension
shortfalls.

Many public sector pensions will now have actual surpluses. What do you think will happen to those pensions with  surpluses?

A) The surpluses are returned to taxpayers

B) The unions will fight for more pension enhancements? ie. earlier retirement ages or higher payouts?

It appears the options have been set for pension reform.

Will it really eliminate the problem of Canadians living in poverty? The average CPP payout today is around $ 6,060 per year. A doubling will bring them to $12,120.

How many retired Canadians can live off $12,120 per year mount?

Either way the public sector will still be getting gold-plated pensions.

Bill Tufts
Fair Pensions For All

Opportunities for Canada's pension funds

The UK is under severe financial distress, or so thinks the current government.

As a result the British government is looking at ways to lessen their financial problems. Like all governments in times like these they look at selling assets to help pay for the high costs of the public sector and its pension liabilities. One way the UK is looking at raising funds is by selling the forest of Britain. Most of these forests will end up in the hands of Canadian pension funds. 

  

MSN picked up the news and reported on it in Britain plans huge sell-off of forests in bid to cut deficit 

LONDON — Britain's government will soon unveil plans to sell around half of the woodlands it oversees, paving the way for a huge expansion in holiday resorts, golf courses and commercial logging operations, The Sunday Telegraph reported.

 

Environment Secretary Caroline Spelman will unveil the plans to dispose about 50 percent of the 748,000 hectares (1.85 million acres) of forest within days, according to the newspaper.

Laws overseeing so-called ancient forests, such as the Forest of Dean and Sherwood Forest, are most likely to be changed to allow companies to cut down trees, according to the Telegraph.

"We are looking to energize our forests by bringing in fresh ideas and investment, and by putting conservation in the hands of local communities," a source close to the Department for the Environment Food and Rural Affairs (Defra) told the newspaper.

A third of the land will be sold before 2015, and the rest by 2020, a government source told the newspaper.

Legislation dealing with forests dates back to the Magna Carta, which was forced onto King John in 1215 and formed the basis for English law, the newspaper reported.

Boon for Ontario Teachers

One pension fund ready to jump at the opportunity is the Ontario Teachers Pension Plan (OTPP). they rub their hands together over opportunities like this. These investments produce high level and long term profits. Best of all they do not have to disclose any of their dealing with these assets. They come under the umbrella of private equity. 

Ontario Teachers has privatized many assets that are capable of producing 20% to 25% returns. These are fantastic returns in times like this.

OTPP already has a big foot in the door in the UK.It has purchased many former government assets already and will be eager to get more onto their books. 

Teachers Private Capital 

Teachers has made a big purchase of New Zealand forest and will be familiar with the steps need to acquire the forests of the Britain. Ontario Teachers Buy New Zealand Forests 

A group including Ontario Teachers' Pension Plan and Boston-based Prudential Timber Investments Inc. agreed to buy 106,000 hectares of trees from Fletcher Challenge Forests Ltd. for NZ$725 million ($469 million) 

Foresters such as Fletcher are selling forests to concentrate on more profitable timber mills and distribution as the local dollar's surge, 23 percent this year, erodes the value of export log sales. Investors such as AMP Capital Investors (New Zealand) Ltd.'s Nat Vallabh say the North American funds can take a longer-term view of their investments. 

The forest ``is regarded as one of the best plantation forests anywhere in the world,'' said Ian Jolly, a New Zealand spokesman for GMO Renewable Resources, investment adviser for Harvard Management Co. New Zealand has 1.8 million hectares (4.4 million acres) of forest

 As well as forests Teachers is familiar with assets in the UK.

2010 - £150m bid for Acorn Care and Education

2010 - Ontario Teachers’ Pension Plan buys British national lottery operator

2009 - Bristol international Airport positive for Teachers 

2005 -Ontario Teachers' and AIG Highstar Capital II to acquire InterGen

It has several other investments in the UK as well. So expect to see more activity in these types of acquisitions. It has no shortage of cash from Ontario taxpayers. 

Teachers has over $96.4 Billion accumulated assets for its 289,000 teachers and retirees. This contrasts with the Canadian Pension Plan (CPP) that which has $129 Billion for 18,000,000 working Canadians. 

Bill Tufts 

Fair pensions For All 

UK makes dramatic pension changes

The UK sees their system of government as being in big trouble. 

Today they made changes that attempt to turn the tide for the UK. For starts the UK slashes 490,000 jobs amid deep budget cuts

The British government announced deep budget cuts Wednesday, as it tries to fight what its finance minister called "the largest structural budget deficit in Europe."

The changes will include "ruthless privatization" and will leave "no stone unturned in our search for waste," Chancellor George Osborne told lawmakers in the House of Commons.

The government will slash 490,000 jobs from the public payroll over four years, he said.
But the cuts will also be guided by the principle of "fairness," he said, adding that "those with the broadest shoulders will bear the greatest burden."

He specifically named banks when saying "those with the most should pay the most," amid widespread British anger at bankers.

But Osborne's predecessor warned against trying to cut the deficit too quickly.

"If the private sector doesn't come in and take [government spending's] place, you run the risk of derailing the economy," said Alistair Darling, who was chancellor until the Labour Party lost elections in May.

The long-awaited cuts follow a "comprehensive spending review" by the new British government, which came to power in May.

Paying interest on government debt currently costs 44 billion pounds ($69 billion) a year, the Treasury said in outlining the spending review -- more than defense, policing, housing or transportation.

The government forecasts public spending peaking this year, then falling to 2003-04 levels by 2015-16. That will still not quite balance the budget, it predicts, but will come close to doing so.
It announced deep cuts to the defense budget on Tuesday, with the armed forces losing 10 percent of uniformed personnel in the next five years.

As we have seen around the world the biggest costs associated with running governments is the cost of the compensation packages for the Protected Classes.

The first place to start in cutting the cost of government is the gold-plated benefit packages for the public sector. In North America and in Europe the biggest challenge has been that the politicians have given themselves the best pensions of all. 

Cut MP Pensions 

Politicians know that any changes they put onto the peon class will affect their pensions. Therefore no pension changes have been made in most jurisdictions because it will affect the  retirement packages of the politicos. So it is promising to see that first place the UK government has started is at the top. MPs’ final salary pension scheme to end

During the Comprehensive Spending Review, Chancellor George Osborne told the Commons that the current final salary scheme for members of parliament will have to end.

Osborne said: “It is clear that the current final salary pension terms for MPs are not sustainable and we anticipate that the current scheme will have to end."

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “I think what he was doing there was demonstrating that the MPs will be the first wave of public servants to face reforms of their pensions.

“He was seeking to diffuse any criticism Sutton’s review and making it clear he is putting MPs in the front line of any suffering that is going to be experience by publically paid employees in respect to their pension rights.”

 The Telegraph reports that:

It was “not sustainable” for the generous final salary scheme, which means MPs can retire on more than £30,000-a-year after only 20 years’ service, to be continued.

At present, MPs are able to contribute as much as 12 per cent of their salary into the fund. 
The Treasury is paying out more than £8 million a year for their pensions – the equivalent of around 18 per cent of their salaries. MPs qualify for the pension even if they are voted out of office after only a few years.

In a report this summer, the Senior Salaries Review Body recommended that MPs’ pensions be switched from final salary to an amount based on their average career earnings.
It also suggested that the pension age be increased from 65 to 68, with a contribution rate of 5.5 per cent of pay.

Mr Osborne said: “It is clear that the current final salary pension terms for MPs are not sustainable and we anticipate that the current scheme will have to end.”

 Higher Pension Age
We have seen the protests that have rocked France over moving the pension age from 60 to 62. The UK has taken the dramatic move of increasing the age of retirement faster than previously planned.

State pension age will rise to 66 by 2020

All Britons under 57 will have to wait until age 66 before they receive their state pension, Chancellor George Osborne confirmed today.

The pension age for both men and women will rise to 66 by 2020.

It marks a considerable acceleration from the 2026 target set by Gordon Brown's Labour party before this year's General Election but is slower than the 2016 date hinted at by the Coalition earlier this year.

Announced as part of the cuts in the Government's Comprehensive Spending Review, the new reforms mean that all Britons born after 6 April 1954 will have to wait until they reach 66 before claiming the state pension.

For women, the rises will happen far more rapidly than expected. From 2016, the women's state pension age be increased so that it reaches 65 (equal to the male age) by November 2018.

Then, between 2018 and 2020, the state pension age for both men and women will gradually rise to 66.He said 'Raising the state pension age is what many countries are now doing. It will save over £5bn a year.'

Healthier lifestyles better medical care now sees the average British male live 77 years, and female until 81.

Back when the state pension age was set at its current 65 level in 1925, only a third of men and 40% of women were expected to live to see their 65th birthday.

Official statistics project that by 2034 the number of people aged 85 and over will be 2.5 times larger than in 2009, reaching 3.5m and accounting for 5% of the UK population.

Public spending has already rocketed by nearly £14bn since 2005/06 when the 'babyboomer' generation of post-war children started to retire. It had been expected to increase by another £4bn by 2012.

Higher Public Sector Pension Contributions

The public sector is expected to shoulder a fairer share of the cost of their gold-plated pensions. Public sector faces higher pension contributions

Workers in public sector pension schemes are likely to be asked to make higher contributions to their retirement funds in the future.  

There has been much public anger over the size of pensions that some of the higher paid in the public sector – such as politicians – receive in retirement.

The reach of public sector pension schemes in the UK is significant, with about one in five people entitled to some form of public service pension.

However, the rising life expectancy over the last few decades has stretched the public sector pension system to breaking point.

Somebody retiring now can expect to spend 40% of their adult life in retirement.

"This has driven up costs - by a third in the past decade - and these extra costs have fallen almost entirely to taxpayers," said Lord Hutton.

"The final salary link in public service pensions is inherently unfair and can lead to high flyers getting almost twice as much back in pensions than those on more modest earnings for the same amount of pension contributions."

These are the types of changes that need to be made to public sector compensation. It will be another matter to see if they are allowed to pass. Based on the protests in France the UK may see it own bit of pension outrage. Survey finds half of UK public sector workers ‘prepared to strike’

The public sector may have no alternative to major protests if they want to stay on the taxpayer funded gravy train. But then again the MP's may be too happy to acquiesce if they think they can keep their pensions as well.

Are the MP's and public sector in the same boat? In any professional services business this type of transaction would be considered conflict of interest.

Bill Tufts 

Fair Pensions For All

Police and firefighters cost $180,000 per year in San Jose, California

 The Economist reports on the pension crisis in America in a recent article Hard-pressed American states face a crushing pensions bill  

CHUCK REED is the Democratic mayor of San Jose, California. You might expect him to be an ally of public-sector workers, a powerful lobby in the Golden State. But last month, at a hearing on pension reform held by the Little Hoover Commission, which monitors the state’s government, Mr Reed lamented his crippling public-pensions bill. “City payments for retirement benefits have tripled over the last ten years even though our workforce has declined dramatically, and we have billions of dollars in unfunded liabilities that the taxpayers must pay,” he said.

Mr Reed estimated that the average cost to his city of employing a police officer or firefighter was $180,000 a year. Not only can such workers retire at 50, but some enjoy annual pension payments greater than their salaries. They are also entitled to cost-of-living increases of 3% a year, health and dental insurance for life and lump-sum payments for unused sick leave that could reach hundreds of thousands of dollars.

 Now the problem is making headlines, especially in California, where taxpayer groups have been highlighting the generous pensions of some former employees. More than 9,000 beneficiaries of CalPERS, the largest state retirement plan, receive more than $100,000 a year.

The stage is set for conflict between public-sector workers and taxpayers. Because almost all states are required to balance their budgets, any extra pension contributions they make to mend a deficit will come at the expense of other citizens. Utah has calculated it will have to commit 10% of its general fund for 25 years to pay for the effects of the 2008 stockmarket crash. But attempts to reduce the cost of pensions are being challenged in court and will be opposed by trade unions, which still have plenty of members in the public sector.

New Jersey provides a prime example of America’s pension difficulties. In August the Securities and Exchange Commission (SEC) charged the state with fraud for misrepresenting the underfunding of its pension plans to municipal-bond investors. This was the first time a state had been charged with violating federal securities laws. It settled the case without admitting or denying the SEC’s findings.

A study by Ms Norcross and Mr Biggs outlines, using the Treasury yield as a discount rate, how New Jersey has run up a pensions deficit of $174 billion. That is equivalent to 44% of the state’s GDP, or more than three times its official debt.

Understated Liabilities

 The Wall Street Journal reports that a major part of the problems are the accounting rules that are applied to pensions. An article today shows that Cities Hide Pension Liabilities

 Many of the largest U.S. municipalities are understating the true size of their pension obligations by using inappropriate accounting methods, leading to $574 billion of unfunded pension liabilities, according to a study released Tuesday.
Those unfunded pension benefits are in addition to $3 trillion of unfunded liabilities that the study's authors have said exist among state pension plans.

Supersized Superannuation - Canada's Problem 

Earlier this year the CD Howe Institute released its analysis of the underfunded situation in Canada. They called the report Supersized Superannuation: The Startling Fair-Value Cost of Federal Government Pensions This report shows that Canada has a serious problem with its plans.

As long as bureaucrats and politicians have a retirement that is dependent on these gold-plated taxpayer funded plans; this problem will be kicked down the road.

It is hard to change the system.

The public sector unions have take municipalities and states to court to have any pension changes overturned. The courts have upheld the pensions in their current form. They cannot be changed for existing employees.

Of course the unions have a point when they feel they are the scapegoats for a broken system. Especially when the financial institutions that were bailed out by taxpayers are abusing taxpayers.

Another indication of our broken system is the bonuses that Wall Street are taking home this year. Wall St. soaking up record bonuses shows that executives of financial companies are expected to receive a record $144 billion in pay and bonuses this year.

Someone has to pay these bills of course. It will be taxpayers everywhere who are responsible for bailing out both incompetent corporations and pension shortfalls.

Many will not be able to sustain this burden.More seniors spending golden years in bankruptcy

Bill Tufts 

Fair Pensions For All

Let the Good Times Roll

Let the Party Continue!

There is a party is for the benefit of Canada's public service and the taxpayer is invited. Maybe I should say the taxpayer is mandated to attend and buy tickets.

An article this week in the National Post shows how Ottawa Overstimulates the Civil Service.

So who benefited most from Ottawa’s billions in stimulus spending over the past two years?

Indeed, the biggest winners likely have been public-sector workers, not surprisingly. In just the last year, public service employment rose across the country by 3.4%, half or more of the increase the result of jobs created to hand out stimulus cash.

So while there is scant evidence that all the billions spent stimulated many private-sector jobs – the original purpose of the money – there is plenty of evidence it created lots of new jobs in government overseeing the non-jobs being created in the public sector. Governments aren’t much good at creating employment, except for more government workers.

It takes roughly four government employees to do the work of three private-sector ones. That, in a nutshell, is why it costs more to hire government workers and why a burgeoning public sector is a burden on taxpayers, particularly now when taxpayers can’t afford the extra strain

Public Debt Exploding  

The cost of the party is becoming very expensive. As government revenues fall the costs of growing the public sector with gold-plated pensions and benefits soars! There are no taxes coming in so the money is borrowed for future generations to pay off. We call it public debt. 

As the National Post said these giant public pension funds and unions are “wealth confiscated bygovernment…using money taxed from all their constituents.” And why not – all government employees AND elected politicians will be the beneficiaries at our expense.

The Canadian Finance Minister released his expectations for the next three years in Canada. Basically it is a nightmare, a real disaster for taxpayers. But the goodies continue to flow for the public sector party! 

Ottawa posted largest deficit ever last year

The Canadian Taxpayers Federation also reacted negatively to the update, urging Ottawa to cut spending in order to balance the budget sooner.

Even by Ottawa's accounting, the government will add $171 billion -- or $10,277 per taxpayer -- to the national debt before the books are back in black, the group calculated.

"A family of four tax-filers will have to pay off almost $41,000 due to this spending binge," said Kevin Gaudet of the anti-tax group.

We saw in the past three years that government had to bail out banks and financial institutions that over extended themselves in bad credit. At least the governments were there to bailout the banks and financial institutions when the party got out of hand. 

But who will bail out the governments? 

We are all in it Together

It would be nice to think that in times like this all Canadian would pull together to get the country out of the mess it is in. Something like the times of hardship in the 1930's that had all Canadian pull together to create the country we have today. 

Unfortunately it is every man for himself today. The public sector employees and politicians have made sure that they have set aside enough money to fund themselves into the Golden Years. 

The public sector has set aside $800 Billion to fund their retirements. This is more than the total value of the 

$ 275 Billion Canada has in the country's infrastructure. The $1 Trillion in debt Canadian governments have accumulated has not gone towards building roads, airports, waterways, hospitals or schools, things that would benefit all Canadians. 

Canada's debt has gone into the retirement pots of the Protected Classes. (Schwarzenneger's term)

Injury to Insult

You would think that the  public sector might look at our situation and say "we need to help out". However, this will not happen and Canada's pension system is on a crash course to destruction.

In Fredericton one politician tried to make a very simple and very moderate change. Of course his idea was beaten and ridiculed into defeat by a very vocal union membership. Fredericton council backs off pension reform

These public sector defined benefit plans are a Ponzi Scheme on their way to collapse. You would think that the unions would be prepared to give the taxpayers a little bit of a break. But instead they are determined to break the taxpayers! 

My editorial letter was printed in the newspaper about this issue.  See - Let's look at the numbers

Bill Tufts 

Fair Pensions For All