Canada’s looming pension wars

Boomers are only now starting to take stock of retirement and many don’t like what they see

Nathan Denette/CP

Nathan Denette/CP

As the City of Regina debated its largest tax hike in more than a decade, 76-year-old George Malish looked at his household balance sheet to see how he would pay for it all. Taxes were rising, along with utilities and phone bills. Yet Malish’s Old Age Security (OAS) cheque had gone up by just 55 cents a month. “I ask [city officials] to please put their heads together and decide how to divide 50 cents a month and forgo the other increases they are demanding,” he wrote in a letter to the local newspaper, suggesting that politicians and bureaucrats should also try limiting their own wage increase to 55 cents a month.

Despite what he sees as the growing demands on his meagre benefits, Malish considers himself one of the lucky ones when it comes to financing his retirement. Aside from income from CPP and OAS, he receives a company pension after retiring from what he calls “blue-collar work” in 1994. Two decades of inflation have steadily eroded his income, but at least Malish’s pension covers prescription benefits for himself and his wife. “Very few people have that,” he said in an interview. “That’s what’s giving us a very decent living.”

Like many of his generation, Malish is at the forefront of the coming pension wars, the growing divide between the haves, whose retirement is secured by guaranteed workplace pensions, and the have-nots, left to scrape by on their own meagre savings. It’s shaping up to be a battle between politicians and government bureaucrats armed with pensions that offer guaranteed payouts and the remaining 80 per cent of Canadians in the private sector who are preparing for retirement with a patchwork of different savings programs. With the first wave of  Baby Boomers heading into retirement, Canadians are only now starting to take stock of what kind of lifestyle they can afford with their savings and comparing that to their neighbours working government jobs. Many don’t like what they see.

“As people are becoming aware of the divide that exists, I think there is going to be resentment over the fact that some people are retiring much earlier and are going to have a much more financially secure retirement,” says Bill Tufts, a benefits consultant and founder of advocacy group Fair Pensions For All.

Already that resentment is starting to spill over into public policy. In Ontario, Liberal Premier Kathleen Wynne has staked her election hopes on voters’ angst over their retirement savings by promising a made-in-Ontario pension plan aimed at middle-class workers. Meanwhile her opponent, Progressive Conservative Tim Hudak, has attacked the plan as a job-killing payroll tax and is promising instead to cut spending by firing 100,000 government workers.

Public sector unions are pushing back against the growing threat of pension envy that is putting pressure on governments to cut back on their retirement benefits. The Public Service Alliance of Canada, the union that represents federal government workers, argues that at $25,000 the average pension payment for its members is hardly lavish.

Yet governments are struggling to afford even those benefits. This month, auditor-general Michael Ferguson warned the pension system for federal public servants was underfunded by more than $150 billion, representing Ottawa’s biggest liability next to the $668-billion federal debt. The federal government also paid $9.2 billion worth of interest payments on pension-related debt —nearly a third of the government’s total interest payments for 2012. Ottawa has also channelled another $1 billion into its pension fund from other tax revenues to help cover the roughly $15 billion in pension benefits it pays out every year, representing 5.5 per cent of all federal government spending.

Proponents of generous public sector pensions have traditionally argued that governments need better benefits in order to compete for workers who can find higher salaries in the private sector. Calgary Mayor Naheed Nenshi said as much this month when he warned that the Alberta government’s proposed public sector pension reform “could have a crippling effect on our labour force,” by encouraging an exodus of municipal workers to the private sector.

But it’s no longer the case that public sector workers are paid less than their private sector counterparts. A study by the Ontario Institute for Competitiveness and Prosperity (ICP), a government-funded think tank, found that for many jobs—particularly non-management positions—government workers now receive both higher salaries and better benefits than their private sector counterparts. Such generous guaranteed pensions make it difficult for politicians and bureaucrats to enact good policy because they can’t empathize with the struggles of average Canadians, says Gregory Thomas, federal director of the Canadian Taxpayers Federation. “You create a separate class of people who really identify with the government as opposed to the people they’re governing.”

Increasingly the anger over “gold-plated” public sector pensions isn’t focused on how much government workers are earning in retirement, but that they have access to a pension at all. Thanks to the decline of manufacturing jobs, the percentage of private sector workers enrolled in defined benefit pensions dropped from 35 per cent in 1970 to 12 per cent by 2010. Nearly all public sector workers in the largest provinces are covered by workplace pensions, regardless of whether they are junior secretaries or senior managers. By contrast, even the most skilled private sector workers have roughly a one-in-two shot of landing a job with a pension. Even then, most of the private sector pensions are defined contribution plans, where the benefit payouts depend on how a worker’s individual retirement account performs. The differences between the two types of pensions are huge. The ICP estimates the typical defined benefit plan for a manufacturing worker is worth $255,000 compared to $43,000 for a defined contribution plan.

That is the kind of discrepancy that riles taxpayers, who end up paying out more to fund public pensions than they get from their own employers. The ICP estimates that governments contribute an average of $4,530 a year for every worker, compared to an average contribution of $3,230 for private sector employers. Those are tax dollars not available to fund health care and infrastructure spending, says Tufts.

Yet others argue that growing pension envy is pushing policy-makers in the wrong direction, by encouraging governments to pare back their own pension benefits rather than expand benefits in the private sector. That will end up hitting taxpayers in other ways, such as through government programs like the Guaranteed Income Supplement for low-income seniors. A Boston Consulting Group study last year, funded by Canada’s largest public sector pensions, found that 15 per cent of pensioners with a defined benefit plan collect GIS compared to as many as 50 per cent of retirees without one. “If there’s not going to be the ability to bargain defined benefit plans then the pressure is going to come out somewhere else,” says Herb John, head of the National Pensioners and Senior Citizens Federation, who retired from Ford at age 49. “It’s like a bubble under a rug. You can’t get rid of it. You can push it around, but it’s always going to be there.”

Many worry that the grumblings of pension envy today will eventually explode in a full-blown crisis as young workers, saddled with student debt, mortgages and stagnant incomes, age into retirement. “The resentment becomes divisive,” says Alexandra Lopez-Pacheco. At 53, she’s a pensionless freelancer whose retirement wealth is tied up in the rising value of her Oakville, Ont., home. But she wonders what will happen to her three children. “When we start losing things that are really essential to society, we start resenting those who have [them],” she says. “We’re not helping ourselves or them. We’re bringing down the bar.” If anything, the pension wars are just getting started.

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Canada’s looming pension wars

  1. Excellent. Repeated use of the word “generous”. And with a
    “gold-plated” thrown in. John Ivison would be impressed.
    Anyway, pensions were not a common feature of life in the
    19th century. Why should they be now?

  2. The cause de jour to produce the fear de jour.

  3. Both Federal and provincial gov’t have known this for over 50 years, they also know what’s gonna happen to our future pensions. They’ve had the numbers, and the facts.
    Canadians have paid exhorbetant amount of Taxes, on even everything today, and still, the gov’ts have managed to “sqander” all that we had put in “trust” to them, including future Pensions.
    Gov’t will vehemently deny any responsibility, or, as usual, blame a “past” gov’t,…, and still there’ll be no “accountability”.
    I guess the future generations will just have to pry it out of their govt’s cold, cash-full hands.

    • “Cash-full”? They’ve already spent our grandkids’ money…

  4. In the 1990’s, the federal government (Paul Martin’s Liberals) removed 30 billion dollars from the balance sheet of the federal civil servants pension fund. I wonder how much that 30 billion would be worth on the balance sheet today if it never had been removed?

  5. Public sector workers always have to remember that the money used for their pensions was confiscated from someone in the private sector. Mayor Nenshi’s concern over the ability of government to compete with the private sector is illustrative of the disconnect from fiscal reality that is far too prevalent in the public sector.
    So what if the public sector will have a hard time competing with private sector employers? This will simply force governments to prioritize and eliminate “feel good” initiatives such as public art and the funding of special interest groups.
    Payroll accounts for 75% and up of government expenditures. That makes it the single area that simply has to be targeted. Economies gained elsewhere are simply nibbling at the edges, and some of it is simply dumb. (The feds recently spent over $2 million to identify and collect about the same amount in taxes from the construction sector in NE BC. Doh! Yet I’ll bet anyone a C-note that the feds will stay as far away as possible from anyone named at the Charbonneau inquiry.)
    Taxpayers don’t represent a bottomless pit of money,and those of us in the private sector are rightfully angry that money that has been confiscated from us supposedly to make Canada a better country really has only been used to build a bigger, shinier civil service. Unfortunately, that’s what lots of us have been saying all along.
    Maybe governments are starting to listen.

    • So true – the number of real jobs that governments must do is actually very small. But at every level of government, they have assumed more and more and more responsibilities (with very few taxpayers actually demanding that they do so – it is usually a few, very vocal special interest groups that insist the city must provide this service, or the province must support this activity). I suspect about half the staff could disappear and the impact would be minimal and I suspect the road in front of my house from the water main break last winter still wouldn’t be fixed!

      • Exactly! It doesn’t matter which point in time you start from, since that date, the cost of government at any level has increased at a speed greater than the population, inflation, or the economy. At some point the merry-go-round has to stop, and governments are routinely acting shocked when taxpayers- not government employees and various government sponsored special interest groups- demand an end to the non-stop increases.
        It is only a small majority that actually pay taxes, and that percentage shrinks with each passing year. The point at which taxpayers (vs tax spenders) becomes an actual oppressed minority is probably only a decade or so out. There are only 4 provinces out of 10 that contribute to equalization, and they represent less than half the population.

  6. Here’s a really radical plan – save for your own pension!!! I was self-employed for 25 years and in addition to contributing to both the employee AND employer share to CPP I also managed to max out my RRSPs, my TFSA AND invested in non-RRSP investments.

    And I my best year for income topped out at about $80,000 – I did it by not taking a 3 week holiday with the family at a 5 star resort every year (every three years I took a nice out of country vacation), not buying a new car every year (my accord is 12 years old), not eating out two or three times a week (maybe two or three times a month) and no buying every new gadget, electronics and maximum number of TV channels. When a friend mentioned that her marriage was toast but she wasn’t going to divorce him because (in her words) – “I would then have to live like you!” I knew I was on the right track. No mortgage, no debt, and close to 1.1 million in investments.

  7. The simple answer is to close the current government DB plan to new members and create a DC plan similar to what private and public companies now offer. This levels the field for all and over time and will reduce the gap between public service jobs and private economy jobs. Most large corporations started doing this 20 years ago.

    • If government gave a dead rats ass about people pensions they would:

      – direct all CPP, employee and employers part to a individual LIRA.
      – direct EI to your LIRA
      – force all to have a TFSA with 5% gross income put in per year of work.

      Then if pooled money types want pooled money, they can borrow from you at a defined rates above real inflation+taxes. No hiding the lack of pooled plan performances with actuarial BS for 40 years, you need to know if your pension is offtrack at 25 not 55/65 when they change the rules requiring more inputs to pay less.

      Pooled plans are pooled scams. Even want you to wait until 67 like slaves, then when you die the spouse gets little and estate gets nothing.

      Hey, if I die, my spouse gets the FULL value in a giant roll over, and when she dies, we donate it so government tax greed doesn’t get 46%.

  8. It’s still a burn that we create new pensioners by voting out bad governments. I hope my own generation is being diligent to take care of it’s “own” interests.
    Taxes, bills and savings aren’t sexy but the first two are impossible to avoid.

    • Its harder to bamboozle people if the money is in your name/account/control.

      If governemtn or a business messes up, its still in your name/account/control then they can’t screw you over.

      Take a Nortel or CPP situation. Both ahve pathetic ROI as they have been mismanaged and scammed… if it was in your name/account/control it can’t be screwed with and you don’t have to wait until you are 65 to find out the ruse.

      People do need to take charge, and governments are NOT looking out for our best interests. For example, CPP and Disabled only got a 0.9% raise, OSA and GIS only 0.1%, yet employee contributions are 4% higher….to cover up the $400 billion CPP shortfall from decades of returns below real inflations and wastes.

      “Blind faith” in government is a setup to bamboozle you. If anyone ever did a CPP ROI on a 40 year worker, you would reclassify CPP as a tax with little residual value.

      I put less in my RRSP than was into CPP, yet at 57 the dividends alone are 3 times that of what CPP would pay, and I don’t have to wait for a civil servant to decide when I retire. Better yet, when I die my spouse gets 100% of the value and no actuarial BS about it.

      RRSP is so big, it grows faster than I take out. I could live on its dividends and never tap its capital and gains. I could live to 200 years old and not run out. I am in RRSP tax trap territory and why I am donating to charity when my wife and I don’t need it any more, so to minimize the tax greed.

  9. I love the mentality of individuals who take the stance of “I don’t have a pension any you do. So let’s tear yours apart, and then everybody wins.” What kind of thinking is that? At the end of the day, when everybody is on the bottom, is that considered victory? Perhaps if your pro communism.

    Greed and jealousy is an awful thing.

    • Your heart is in the right place, but you are operating under an erroneous assumption.
      The government pensions that are the cause of much concern aren’t supported by profits, nor are they the result of outstanding business achievement. They have been arrived at by govt. unions appointing themselves the recipients of largesse of the treasury.
      Defined benefit pensions have disappeared from the private sector mostly because they were simply unaffordable for all but a few, and very large, companies.
      For example, our city has 1800 employees. We contribute some $15000 per yer per employee into their pensions. This is over and above pay that is, on average, more than 50% higher than what the average Albertan earns. That is a huge burden, and probably less than one or two businesses out of a hundred, of any size, can bear those kinds of costs. Very few businesses have profit margins that could support those kinds of costs, and in a competitive environment, a small or medium sized enterprise would have it’s ass handed to it on a platter by a competitor with that big of a cost advantage.
      Instead, we have had politicians who have never backed a payroll with their own money in their lives, declaring that they want their government to be seen as a “premiere” employer that offers “competitive” pay and benefits, while the unions have wielded strike power like a club, secure in the knowledge that there are no potential market repercussions to their actions.
      Simply put, the unions have used one of the ultimate free-market tools to enrich themselves at the expense of people who have absolutely no recourse. We can’t take our business elsewhere, or negotiate lower prices, in the fashion that we can in the private marketplace. The union settlements are backed not by any competitive advantages their workforce or employer might have, but by the coercive and corrosive ability of the government to confiscate private wealth.
      It is the government unions who have chosen to tear down what others have, and attack the concept of private wealth. My earnings, savings, and pension will be the result of my own efforts in a competitive marketplace. Yet many of my neighbours, most of whom have always earned less than myself, will retire earlier and with access to greater wealth not because they have been successful in their careers, but because they chose to work under the protective umbrella of an organization that relies on coercion and confiscation to enrich it’s membership.
      I simply believe that, as free citizens, those of us who actually pay taxes have the right to expect that governments take steps to curtail the power of public sector unions, and reign in pay and pensions that have leapfrogged the ability of taxpayers to fund them. If a politician or a public union leader wants to be a premium employer, they are certainly free to take the risk and try and build their own company that is so successful that it can provide the very kind of financial rewards that seem to have magically flown to those who work in the risk-free an d profit-free environment of public sector.

  10. Not me. I didn’t get suckered into too much pooled plan scams, I even engineered 2 layoffs (one with severance) so I could roll over the pension assets to my LIRA. Only one employer stiffed me for $28k as its locked in with returns well below inflation and I have to waith until 65 to get the pathetic return. Pooled plans are pooled scams and I date media to do a proper ROI on pooled plans including CPP.

    I took the position of I want it in my LIRA. So when I rolled it over in 1995 from NorTel, I didn’t lose, it now returns 3 times as much at 56 as they said I would get at 65…. and if I die, my spouse/estate gets it all minus taxes.

    My 7 digit retirement is split, 60% in cash and 40% in deferred RRSP/LIRA/IRA. But TFSA is far better as my RRSP is now a tax trap. But all of it is in MY name, my account and my control, I even got to retire early and no retire at 55 civil servant can make me wait to 67.

    By letting govmint define your plans, you are going to get screwed, as not all of our bodies are going to last to 67 for working….and if your financially ready, when you investment dividends are greater than your spending (leaving gains for inflation growth) you are ready to retire.

    Hey, I will likely not outlive the money I have saved/invested so why work for the government without the benefits? But then I took active control in my life, and didn’t count on government. CPP/OAS wouldn’t even pay my taxes.

    And being disabled at 54, I get to keep my home as I counted on myself. If I have to live on CPP/Disability, I would have to sell the house and become destitute and homeless…it even comes with fincial security and liberty to take charge of your life and not get sucked into statism-government pooled plan nonsense.

  11. firing 100,000 government workers.

    Journaist statism BS. In 1,200,000 14 months of normal course retirement and attrition is larger. Very few will get fired unless their jobs are utterly useless and they are inflexible.

    Part of why we lose jobs, our economy is debt-tax hyper-inflated requiring uncompetitive high wages to do anything, so jobs leave where they can leave.


    You have to earn $1,400,000 to pay $700,000 in taxes, $300,000 in fair interest, to buy a $400,000 home that is $200,000 in labour, fees, tariffs and other taxes to build the $200,000 home.

    Mexican earns $200,000 to pay $40,000 in taxes, $40,000 in interest to buy a $120,000 home. (Also pays a whole lost less in city/utility/education taxes too).

    American earns $360,000 to pay $60,000 in taxes (after taxes), $50,000 in interest to buy a $250,000 home. (Also pays a whole lost less in city/utility/education taxes too).

    My buddy in USA had his roof done, $6200, me, its costing me $12,800 for near identical home. As in Canada the labourr taxes are so much higher with utilities, tariffs and hidden taxes extra, GST/HST extra. Bright side its $6600 I don’t have to spend on someone else’s job (sarcasm).

    Its why our bloated bailout buddy governments can’t fix the economic and job problems — they are the problems.

    Jobs come from AFFORDABLE exchange of goods and services and tax greed reduces affordable for less jobs. Even reduces investments as why invest to lose money to currency depreciation and union/tax greed?

  12. Me, am not as concerned as many as I always never had “blind faith” in statism government managing my retirement or some companies “pooled plan” scam.

    I arranged for more than 90% of my pension needs to be from my name/account/control accounts and not some pooled plan scam. My dividend returns are more than I spend so if I die next year or live to 500, I will have a long term steady stream income.

    I even decided to retire early at 54. Accountant asked me why I work at 51. On a average income, I bought a modest duplex, moved up to the big house paying very little in interest and was debt free at 35. After that I paid my retirement account the mortgage money….investing it. No need for me to have Ottawa tell me to wait until 67.

    Reverse of mortgages you get huge sums of money paying you to save more.

    But like I said, I even quit jobs to get the pooled plan into the LIRA, contributed less to RRSP (young should use TFSA) than CPP, yet the returns are so much better….

    Over time time, distrust in govmint plans was well founded. If I got CPP retirement today, it wouldn’t even pay my taxes.

    Best part though, Ottawa, political, union greed….I am more insulated than most that have blind faith in government. They can lower your CPP….but its gong to hurt me a lot less than most.

    All I can say is get your pensions in your name/account/control so the rules don’t change for political/union/bailout/statism debt greed malfeasances. You will be glad you did.