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Why the one percent isn’t to blame for income inequity

Our Editorial: It’s past time to rein in the public sector pension plan bacchanalia


 
A postal worker delivers mail as an ongoing labour dispute between the Canadian Union of Postal Workers and Canada Post continues, Tuesday, July 5, 2016 in Ottawa. (Justin Tang/CP)

A postal worker delivers mail as an ongoing labour dispute between the Canadian Union of Postal Workers and Canada Post continues, Tuesday, July 5, 2016 in Ottawa. (Justin Tang/CP)

On the fifth anniversary of the Occupy Movement, the notion that an elite group of “one-percenters” is responsible for vast problems of income inequity and political discord remains a popular complaint. Yet if we’re concerned about fairness in Canada, it’s not these one-percenters we should be worrying about. The real threat to Canada’s future social harmony is a group we might call the 83-percenters.

There are approximately 3.6 million public sector workers in Canada. Of this group, comprising teachers, nurses, police, firefighters and bureaucrats at all levels of government, just over three million are covered by highly desirable defined benefit pension plans. Eighty-three per cent of Canada’s public sector employees, in other words, can look forward to the sort of well-funded, worry-free retirement that is largely unattainable for everyone else. How long will Canadians put up with such gross inequity at the hands of a privileged few?

Pension plans generally come in two flavours: defined benefit (DB) plans which offer retirees a guaranteed, often inflation-protected, stream of payments; and defined contribution (DC) plans with payouts determined by contributions and uncertain investment earnings. Since DB plans require employers to shoulder the risk of future benefits as well as unfunded liabilities, and are expensive to operate, over the past several decades companies have moved en masse to either drop pension coverage altogether or shift their employees into DC plans. While less than a quarter of all private sector employees have a pension plan of any kind today, they comprise the vast majority (87 per cent) of all DC plan members in Canada.

RELATED: A stalemate on pensions leaves workers in the lurch

This same trend is not in evidence in the public sector. Within the comfy confines of the taxpayer-supported economy, DB plans still rule supreme. Of course the predominance of guaranteed-payment pensions is in addition to the many other advantages enjoyed by public sector workers, including a lower risk of layoffs, earlier retirement and, in many cases, higher salaries than their private sector peers. Our 83-percenters enjoy a lifetime of perks that cannot be justified on the basis of productivity or hard work.

Recent contract negotiations at Canada Post and General Motors of Canada bring the issue into sharper focus. GM recently agreed to hire more workers only after the union allowed it to shift those new hires to a DC scheme, thus taking pressure off the firm’s troubled legacy DB plan. It’s a historic union concession. “Was it worth it to get new employees the opportunity to get jobs … and give up the [DC] plan for new starts? The answer is yes,” said union president Jerry Dias. At Canada Post, however, last month’s strike-averting labour deal avoided addressing the mail carrier’s massive unfunded pension liability or shifting new workers to a DC plan, despite the gloomy outlook for mail delivery. While private sector workers are giving up unsustainable DB pension plans to secure future jobs, no such trade-off exists in the public sector. The threat of debilitating strikes by teachers, police or mail carriers is sufficient to ward off any effort at correcting pension inequities. The party rolls on.

MORE: Canada’s looming pension wars

Given current trends, it won’t be long before DB plans are the exclusive domain of the public sector. Private sector workers will thus be forced to fund the cushy retirements of others while being denied those same opportunities themselves. Such an uneven bargain cannot last forever.

Someone who understands this impending crisis is federal Finance Minister Bill Morneau. In 2013, when he was still head of human resources firm Morneau Shepell, he laid out the inevitabilities of the coming pension crisis in a speech in Fredericton, N.B. “Who believes that the average Canadian, without a defined benefit plan . . . will, over the long term, agree to continue to fund public sector employees’ pensions at a level that they can only dream about attaining themselves?” he asked. “It’s older public sector workers versus everyone else.”

Yet while pension consultant Morneau demanded dramatic changes to public sector pension plans to scrape off their gold plating, since taking office his only action on pensions has been a misguided enhancement of the Canada Pension Plan. Changes officially announced last week will add an extra $2,200 per year to mandatory maximum contributions by 2025. Despite substantially higher premiums, however, the overall impact promises to be embarrassingly small. According to research by Morneau’s old firm, a mere five per cent of Canadians will be rescued from inadequate retirement incomes by the new CPP. The rest of us will simply pay more.

With DB plans heading toward extinction in the private sector, it’s past time to rein in the public sector pension plan bacchanalia. While some provinces have taken steps toward reform, there’s much more to be done—particularly at the federal level—to ensure the Canadian values of equity and fairness continue throughout retirement. Those 83-percenters should consider their elite entitlements on notice.


 

Why the one percent isn’t to blame for income inequity

  1. I work for the public service federally, but I still pay taxes like everyone else. What frustrates me, is that a whole reorganization from MPs all the way down must be taken into account, not just certain parts of the public service. Picking on Canada Post or other public service agencies is the tail wagging the dog on this one.

    A military member (not an officer) who works for 20 years in uniform, doing as the country demands, putting themselves into harm’s way, will only get 40% of their salary as a pension… until age 65, at which time there will be a claw-back to take into account CPP. Not to mention, on their working salary, they need to pay into the pension planS (theirs and CPP), taxes, EI (which, btw, they can never access once they’re out of the military), medical & dental (for their families, not for themselves), mess dues (which aren’t claimable on taxes) and provincial taxes – a LOT of deductions. Then with what’s left over (usually about half of their gross), they pay for everything else they need to live. So, when they retire, that 40% doesn’t really go far at all. Let’s say our guy ends up with $40,000/year if he’s making $80,000 after 25 years (that gives him a 50% pension instead of 40%). So after MORE deductions and MORE taxes, he’s bringing home around $2160/month to see him through to 65, after which he’ll lose around $600 a month as his ‘bridge benefit’ for CPP. So he’ll NEVER bring home more than 50% of what he used to live on, unless he taps his RRSPs… which he had to put aside with his net salary each month (as well as mortgage, gas, vehicles, kids, food, etc).

    That doesn’t seem too bad does it? A lot of people are happy to make that much on a regular job, right? And when you retire, you’re supposed to have lower debts and lower bills (unless you’re in BC, in which case, may as well buy that cardboard box now because the price is only going to go up), so you don’t NEED that much money. Who cares about actually enjoying retirement? It’s just to survive, so let’s hope you don’t live too long because you can’t take out RRSPs after you’re a certain age anyway.

    Now, let’s take an MP’s pay – they get paid MUCH more than our imaginary service member. They don’t put their lives on the line and their uniform is a power suit. They sometimes do as the country wishes, but that’s if they’re allowed to vote the way their constituents want them to vice their leader’s desires, and they only need to serve 7 years before they’re entitled to a pension. So that’s if they’re voted in twice. And not concurrently. Called ‘the best pension plan on the planet’ – and that’s saying something seeing as how some NHL players get $49 MILLION over 8 years – an MP who has served for 16 years, and in cabinet for even a portion of that time will receive $90,000 per year, and not a cent will be clawed back for CPP. Even taking into account that as a gross number, the net would be around $58,500 per year, or $4875 per month. That’s more than most Canadians MAKE in a month, never mind bring home!

    So, don’t go on an on about how Canada Post and PSAC and DND need to tighten up their pension plans because the workers chose to go into public service instead of working for the private sector. How about calling out the MPs and getting them to justify THEIR pension plans? Did you know taxpayers pay $24 for every $1 an MP contributes to their pension? I’d much rather keep $20 of that $24, and put it away for MY retirement, thankyouverymuch.

  2. Let me get this straight? So in order fix the problem, we must make more “working” people poor in retirement years. Sounds like scheme to increase power and wealth for the 1%. Guess what, the vast majority of public pension plans in Canada are in great condition, paid largely by investment returns (75%) the remainder (12.5% from employees, 12.5% employer). Then when they receive the pension, they get taxed on it (INCOME + SALES). So that 12.5% from the government (employer) goes back to them! Why attack something that costs almost nothing yet makes our WORKING people better off? The only losers are the Mega Wealthy Investment bankers that cannot charge working people huge fees to invest for them.

    • Nonetheless, public servants enjoy pensions that people in the private sector can only dream about. This is pretty much a fact. It’s why there is an issue. And it takes willful blindness to not see the problem.

      It’s an inequitable situation that can only be addressed in one of 2 ways:
      1) require private sector companies (or at least the vast majority of them) to provide DB pensions for their employees that are comparable to what public sector employees enjoy, or
      2) require public sector employees to accept DC pensions that are comparable to what private sector employees enjoy.

      I am yet to hear anyone make a case, let alone an economically and politically feasible case, for #1. If a credible case has been made, I’d appreciate being pointed to it.

      I’d also point out that ‘Mega Wealthy Investment bankers’ aren’t necessarily any more involved in DC plans than they are in DB plans. Both plans require money managers in one form or another to invest the pension money, and even smaller private sector companies will work to get the best deal on fees that is possible.

      Having said that, I imagine there would be no argument from anyone (in the private sector) if public sector pension money was to be handed over to the relevant public sector unions to invest on behalf of their members as they saw fit, as long as the associated risk was transferred as well.

  3. Wow…I mean…WOW! I actually thought that this was satire…

    So according to this editorial the problem with Canadian society is that 83% of people (according to some semi-dubious calculation) actually have good benefits!? And this is a problem!? You’re right, we should have a richer one percent, no middle class and certainly no income security. Hey I have a great suggestion, why don’t we go back to serfdom, it sounds pretty similar. Also when these civil servants you speak of grow old, I guess we should take take them out back and put’em down like Old Yeller eh?

    As the first comment here said, civil servants do pay into retirement benefits just like everyone else, I don’t see the issue here. Though I do totally agree that the benefits extended to MP’s could use a haircut…

    • How would you propose that private sector employees enjoy the same kind of pension benefits as public sector employees enjoy?

      Currently there is a large disconnect between private and public sector pensions, and expecting private sector employees to somehow think that to be a fair situation is totally unreasonable.

  4. No need to demonize public sector workers. It’s just that things have changed over the pawst 10 years where private sector workers have become subject to insecure employment and maybe a DC plan. Many voters feel it is just not fair that they have to suffer all the risks and the publc sector workers are safe. Not Fair. Not Fair. So besides being a looming government expense problem that must be addressed NOW, it is also a political hot potato when the government is talking about helping the middle class. (It is not the public sector’s fault that the economy has slowed and interest rates are low).
    SO the time is now!!!!!

  5. Who created and controls the money systems? who created the poverty? and how does making any one person suffer help those already suffering? Primeminister Trudeau can change the way we do money in our country at anytime, he can, in fact, eliminate poverty and homelessness… the trickle down economy has failed miserably! We are not benefiting, we have seen increases in the cost of living from housing to food, while most individuals work 2 -4 jobs , at minimum wage, just to make ends meet, compare that with 40-50 yrs ago, when a single person could work one job and support an entire family! punishing or blaming those who have secured our minimum wage and benefits, although its still a pittence, is why they will always have my support and why I will continue to hold those responsible that can change the economic slavery/ oppression at anytime, to make the necessary changes to our economy to ease the suffering.

  6. This is what we always here from the public sector: “don’t bring us down to your level, raise yourself to ours”. ok, but how? should government mandate that private sector workers receive the same pension benefits as do public sector workers? after all, that is essentially what the public sector does when one city raises pay or benefits then the workers in all the other cities demand the same deal. that works because the public sector is a monopoly with a taxpayer backstop. i can buy a car from multiple private sector companies but my mail comes from one public sector agency. here is the thing that the public sector workers need to understand: it does matter why there is a discrepancy, all that matters is that there is a discrepancy and that the private sector is footing the bill and so the discrepancy must end; you cannot have the public sector doing so much better than the private sector that is providing the taxpayer backstop, such things lead to revolution.

  7. Well I for one will not purchase this magazine anymore. I used to love this news. When I read garbage like this that is misleading and totally in favour of the 1% it disgusts me that things have gone this far trying to convince the public of this myth. Hopefully the 99% will no longer purchase either.

  8. A very long overdue editorial! The public sectors are ruining this country. I totally support a decent pay for public sector workers ( Comparable to what the Private sector would pay).

    But pensions that are based on the “best 5 years of your career?” Seriously? Dont forget the many many other benefits these unions get like extended healthcare plans that include physiotherapy , dental plans, massages, travel insurance etc etc.

    Look at examples in other countries ( Italy, Greece) where this has led to a collapse of the government pension plans.

    A public pension of $40,000 py would cost any private person $900,000 if you bought an annuity. But the annuity is not indexed to inflation and does not come with all the benefits. If you dont believe this get yourself an online quote from any company selling annuities.

    We should demand that all public sector employees (and that includes politicians) get the following:

    1. A decent wage
    2. DC pension plans
    3. No other benefits.

    Of course the big unions could purchase group discounts for Annuities and all the other extras.

    Of course this won’t happen. Trudeau has too much support from the Unions. We will continue to spend money till eventually the house collapses.

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