The Bridge Benefit unfair to taxpayers

July 30, 2012
By

Canada.com

Jason Fekete, Postmedia News June 23, 2012

Federal government looks to scrap benefit cushion for retiring public servants

OTTAWA — As the federal government overhauls Old Age Security, it’s struggling to pay for benefits owed to public sector employees — including a so-called “bridge benefit” of more than $12,000 a year each for federal workers who retire early that effectively tops up the Canada Pension Plan.

The cost of delivering the bridge benefit, which is written into federal legislation, could cost taxpayers more than $100 million annually, although the federal government has indicated it’s moving to slowly eliminate it.

Federal employee perks are in the spotlight as the Conservative government eyes reforms to public sector pension benefits, looking to eliminate a deficit estimated around $24 billion and initiate what it calls a culture shift in the civil service.

At the same time, newly released government data show that absenteeism in the federal public sector is twice that found in the private sector, while Ottawa paid $1.2 billion in voluntary severance last fiscal year to more than 90,000 public servants who either remain in their jobs, retired or quit on their own.

But it’s another perk and “little hidden secret” available to federal employees — bridge benefits — that is irking business groups and pension experts, and appears to be in the Harper government’s crosshairs.

Workers in the private sector can start collecting the Canada Pension Plan as early as age 60, but must swallow lower monthly benefits if they do so.

In the federal public service, workers can collect their full public sector pension as early as age 55 (although the normal retirement age is 60) and use the bridge benefit to effectively top up their CPP until they reach age 65 so they don’t take a hit to their benefits.

The bridge benefit, which is also available in many provinces, ensures the plan member’s total pension income before age 65 (the regular pension plus the bridge benefit) is roughly the same as the total pension income once they reach normal retirement age of 65, at which time the CPP will begin.

The federal government was unable to provide numbers on exactly how many public servants are tapping the bridge benefits each year and how much it’s costing taxpayers.

However, the Public Service Alliance of Canada — the country’s largest public sector union — calculates an average federal employee retiring at age 60 would receive a bridge benefit top-up of about $12,400 a year, or a total of more than $60,000 between retirement and when CPP kicks in at age 65.

In 2010-11 (the most recent numbers available), the entire public service pension plan paid out $5.2 billion in benefits to approximately 243,000 retired members and survivors — including 10,632 newly retired members — for an increase of $255 million over the previous year.

Newly retired members received an average annual pension of $35,799 in 2010-11, according to government figures. Of the 7,874 newly retired employees receiving full benefits, the average retirement age was between 59 and 60, with an unreduced pension of nearly $40,000.

Public service pension plan contributions totalled $4.3 billion in 2010-11, with plan members contributing $1.5 billion (35 per cent), and the employer (government) contributing $2.8 billion (65 per cent), according to federal data.

The Harper government announced in the March budget it’s moving toward a 50-50 split between public sector worker and employer contributions.

To put it into context, though, the Conservative government’s estimated defence spending last fiscal year was an eye-popping $22.5 billion.

Ottawa is also in talks with union officials to increase the normal retirement age in the public service from 60 to 65 for new civil servants beginning in 2013 — something PSAC says will effectively kill the bridge benefit going forward.

The change means a 25-year-old who joins the public service will have to work 40 years rather than 35 years for a full pension.

The Conservatives also used the budget to announce sweeping changes to Old Age Security — a pillar of the public pension system — that will slowly increase the eligibility age to 67 from 65.

Treasury Board President Tony Clement said the government is slowly working on reforming public sector pensions and benefits to make it easier for Canadian taxpayers to swallow.

“It’s part and parcel of a whole cornucopia of issues that we’re going to have to deal with, step by step, so it can’t happen overnight,” Clement said about the broader reforms to public sector contracts and benefits.

Officials with PSAC said the government dropped the pension changes on them in the budget. They argue federal employees are simply collecting what’s owed to them by the government’s own legislation, which integrates CPP and the public sector pension plan.

“That’s the way the plan was designed,” said James Infantino, a pensions and insurance officer with PSAC. “We’re concerned about the changes, the way they were brought in unilaterally.”

Bill Tufts, an employee benefits specialist and founder of Fair Pensions For All — an advocacy group focusing on public sector pension and compensation issues — believes the government should scrap bridge benefits considering Canadians will have to wait until 67 in the future to receive OAS benefits.

“It’s particularly unfair when, especially recently, they moved the OAS up to age 67 and the public sector is getting that full pension as if they were receiving the CPP with no penalties, no reductions,” said Tufts, who said he isn’t pointing the finger at federal employees.

“We hold the blame mainly with politicians . . . unions are doing their job,” he added. “Why are there two sets of rules — one for the public sector and another for the private sector?”

Dan Kelly, president of the Canadian Federation of Independent Business, which represents more than 100,000 small and medium-sized businesses across the country, said the public sector bridge benefit is a “vestige of a bygone era” and one that isn’t available to most Canadians in the private sphere.

“It has created a real retirement culture within the civil service,” Kelly said, believing the perk makes no sense in an environment of labour shortages.

“We’re giving them golden handshake after golden handshake. This is an incentive to leave the workforce early,” he added, calling the benefit a “little hidden secret.”

 

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