Since the 1960's government workers in many cases have received advantageous pension plans. It was the thing to do at the time and now decades later, the shortfalls are taking their toll.
Government as an employer promised everyone a guaranteed pension payout beyond and regardless what contributions were made or whatever investment returns produced. Such a guarantee can only be provided to a select few, in most cases, government employees to be exact. Because it is other taxpayers who act as the financial backstop. to fulfill promises of an unrealistic pension plan.
The ever-increasing cost to taxpayers of government sector pension plans has been made evident time and again. Contribution rates have been hiked, often doubling in one decade, or the plans have been partly bailed out by governments or in some cases both.
The new kid on the block is defined contribution plans, which is a reform option where future retirement benefits are determined by a combination of contributions plus investment returns compared to defined benefit pensions where future benefits to retirees are guaranteed in advance.
When defined benefit pension plans in the public sector face shortfalls, taxpayers pay the difference.
The latest numbers for the country show only 12.6 per cent of workers in the private sector have a defined benefits plan while 83 per cent of Canada's government employees are lucky enough to have one.
It is understandable that government employees want to keep defined pension benefits; it is not clear this is in the interest of the employer and ultimately taxpayers. It is impossible for governments to guarantee everyone a guaranteed pension payout beyond what contributions plus investment returns produce. Such a guarantee can only be provided to a small cohort because it is other taxpayers who act as the financial backstop.
A recent report by the Canadian Public Pension Leadership Council, a collective of government unions claims that defined benefit pension plans are superior to defined contribution pensions. Saskatchewan's civil servants have been in defined contribution plans for almost four decades. The province's Public Employees' Pension Plan points out, a 26-year-old civil servant who contributes at the required 7 per cent rate (matched by taxpayers) will have an account balance of $881,230 at age 65 which will likely not require post-retirement taxpayer assistance.
Taxpayers cannot afford to keep paying the difference, pension plans have some tough choices need to make.
