Pension system’s ‘huge imbalance’ criticized

November 12, 2011

Times and Transcript,

Telegraph Journal

Canada East


Adam Huras
September 22nd, 2011

Successive provincial and federal governments have failed to make the changes necessary to ensure that the public pension system will succeed over the long term, says an advocacy group led by a policy advisor on pensions.

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Fair Pensions for All founder Bill Tufts.

But Fair Pensions for All founder Bill Tufts said a new review of public-sector pension plans in New Brunswick presents a rare opportunity to provide taxpayers relief from backstopping pension deficits while at the same time finding a reasonable retirement plan for public sector employees.

In a letter penned to Premier David Alward, Tufts said that while public sector employees might appear to have little incentive to push for reforms, they will pay a price in the near future for inaction.

The advocacy group is asking for the pension task force to analyze a hybrid pension model that finds a middle ground between defined benefit and defined contribution pension plans.

It is also calling on the provincial government to determine and disclose the annual cost of public pensions to the New Brunswick taxpayer to show to what extent tax dollars are needed in keeping the retirement fund afloat.

“Taxpayers risk being forced to fund into plans that are no longer sustainable and eat up ever greater amounts of tax dollars,” Tufts said. “At the same time taxpayers are struggling to fund their own retirement plans.

“For public sector employees there are many risks as well: For younger employees there is the cost of ever increasing pension contributions with the worry that these plans may not be there when they want to retire.”

Finance Minister Blaine Higgs has ordered a review of public-sector pension plans in the province, pledging to address the volatility the plan has faced in previous years while analyzing their fiscal sustainability.

Higgs has turned to a three-person task force that was already studying private-sector pensions for the provincial government to scrutinize public service plans.

Tuft said that with pension shortfalls in most public sector pensions plans, long-term solvency is in question.

The advocacy group suggests the task force search out other pension models that are fair to both employees and taxpayers, highlighting a California state commission that developed a “hybrid” pension.

“The hybrid model combines a lower defined-benefit pension with an employer-matched defined contribution style plan,” Tufts said. “It is designed to offer the same level of coverage as exists today.”

Higgs said the task force will study the differences between provincial public service pension benefits and retirement provisions and those offered by private sector employers and how risk should be shared between the government and employees. No timeline has been set for the task force’s work.

Tufts said the government has four choices to shore up pension costs – either change pension provisions going forward, raise additional revenue through taxes to meet the obligations, cut spending, or increase government borrowing.

“To date, the status quo has been to makes cuts in spending, increase taxes, and raise borrowing,” he said. “It is time to seriously evaluate the forth option, changing pension provisions going forward.”

Tufts said there has been a “serious lack of discussion” in Canada about public sector pension reform, noting that New Brunswick’s pension review in a positive step.

“Pensions are what politicians call a ‘third rail,’ you touch it and you’re dead,” he said. “But there is a huge imbalance in the system that needs to be righted.

“We have a lot of hope that through this government review a lot of people will be shocked and surprised with what it uncovers. We hope that it will be a trend that carries on right across Canada to other provinces taking the bull by the horns to say ‘we can’t avoid this problem anymore.’”

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