Newfoundland Pensions Run Out Starting 2021

April 21, 2014
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Auditor General Highlights pensions plans will run out of money starting in 2021

A provincial report that went largely unnoticed was the Auditor General’s (AG) 2011 report that gave a clear time line for the province’s pensions running out of money.

In his report the, the AG states that the first plan will be running out of money in 2021, a mere 7 years from now. The first plan is the Uniformed Services plan that currently has only $ 149.9 million in it against pensions promised of $398 million. This means that when it runs out of money, taxpayers will be responsible for the pension payments to plan members.[i]

 The Uniformed Services plan is an example of what will eventually happen to all of the province’s pensions, including the Teachers Pension Plan which will have only 20% of the money required to fund it’s promises by 2029. See chart below.

It’s very important to remember that taxes redirected to cover the unfunded liabilities in these pension plans will be money diverted away from other areas of provincial spending. This includes health and education as well as programs for the most vulnerable in society, seniors and those living in poverty.

There are clear solutions to the pension crisis and waiting to fix it will make the problem even worse.

The plans are seriously underfunded and running out of money quickly. When the AG gave his report and a date for the pensions being depleted, he was using a rate of return for the fund estimated to be 7.25%. The actual return on the pensions at the end of the last report was only 2.2%. This means the plans will run out even earlier that the report suggests.

The Uniformed Services pension has 550 retirees in the plan and 620 active employees[ii]. It paid out $21.9 million in 2012. The average payout was over $39,000 per retiree. In addition, these pensioners are also eligible for Canada Pensions Plan (CPP) up to $12,500 and Old Ages Security (OAS) of another $6,500.

In comparison, half of seniors in the province had an income of under $23,700 in 2011.

 

Note: 2011 Auditor General Report, Newfoundland and Labrador Pg 483 / 505

http://www.ag.gov.nl.ca/ag/annualReports/2011AnnualReport/AR2011.pdf