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Bureaucrats’ pensions more costly than they say

Think-tank says Ottawa on the hook for $58 billion more


 

Everybody knows that federal public servants—from senior mandarins to lowly government minions—get better pensions than most private-sector workers. But now the C.D. Howe institute says the $140 billion the government budgeted last year for paying out those pensions in the future isn’t nearly enough. Instead, the private think-tank argues the liability should be $198 billion. It’s an arcane argument over how the cost of financing pensions is calculated. But the debate has real impact on the national debt.

Ottawa Citizen


 
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Bureaucrats’ pensions more costly than they say

  1. Indeed. In this case, ‘bureaucrat’ includes soldiers in Kandahar, RCMP officers throughout the country, etc. Not that I am supportive of the bloated defined benefit pensions earned in the public sector. My preference would be to negotiate defined contribution plans with all public sector unions. Perhaps pass a law forbidding the government from entering into labour agreements including DB plans. That done, we should deal with all current pension liabilities by setting up a separate pension fund to fund those liabilities. We should know what the costs of these plans are upfront, and pay for them now. It’s inexcusable to put that liability on our children.

    • Any union that would negotiate away defined contribution plans isn't a union worth belonging to. By definition, a defined contribution plan doesn't actually guarantee that you will have a pension if whoever is in charge of it doesn't make good investments, or if someone steals from the fund.

      I admit accounting for DB plans is complicated, but, hey, I had to learn something useful in B-School. If a DB pension is properly funded from the get-go and responsibly administered, there shouldn't be major future liabilities in terms of cash flow (as opposed to imaginary accounting number-shuffling). The latest figure I heard from the late 90's is that 72% of DB companies pay high manager bonuses and dividends and underfund their pensions, so the problem with DB plans is usually decades of bad management decisions, not the generosity of the payouts.

      • The problem is with the "shouldn't". There is a huge fat tail risk of large, fully-inflation indexed DB pension schemes that make it almost impossible to hedge away. And when you're running a $200 billion pension, that's a big deal!

  2. I don't understand pensions. Why do you get paid for being retired? The argument of 'it's for your years of service to the company' doesn't make sense to me. I always thought the cheque I get every two weeks from my employer was for the service I am providing.

    Furthermore, if pensions were necessary for people to retire, wouldn't the government mandate that every company must pay their former employees a pension?

    • Okay, you're trolling, but I always figured getting old makes it necessary for people to retire.

      Technically, the government does mandate that every company must pay their former employees a pension. It's called the CPP/QPP. Employers pay half the premiums.

      I'd argue that pensions are getting paid for work you did when you did it. From an accounting/tax perspective, the expense occurs when the employee works, not after he/she retires. Theoretically, if the pension is properly funded and administered, the cash flow should work this way as well. Each year you work, the company sends part of your pay to a pension fund, and after you retire, the pension fund sends you money. If you have a pension, your RRSP limit is reduced. On occassions, the pension is under-funded and the company is on the hook, but this is relatively rare.

      It is perfectly legal for a company to "incur" a pension expense and not actually send the money to the pension fund until much later. Stupid and shortsighted, perhaps, but perfectly legal. This is why GM can't pay its pensions.

    • meanwhile MP's want to pay themselves over $60 000 per yera for life as a pension for doing four years of service ..in regards to government workers, if they want a fat pension they should have to pay for it themselves rather than the taxpayer

      • But but but… the "taxpayer" is also the employer. So either the government has employees or it doesn't. If it does, then you cannot claim that they are getting fat off the taxpayer any more than you can claim that an Esoo employee is getting fat off the consumer. If the government wants to have employees, it has to pay them.

    • I'm glad people can admit when they don't understand. A few simple google searches can teach you the basics! Good luck!

  3. Nice use of the word Bureaucrat in lieu of Civil Servant

  4. Because its the C.D, Howe institute, the information should not be run by reputable media until it has been fact checked for methodology by an impartial body.

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