Pension mathematics remains a mystery to most Canadians. Canada’s pension system is unfair and unsustainable. Given the overly generous public sector pensions and the continued declining of a taxpaying workforce to pay for those pensions, Canadians face a very real crisis.
The problem lies in the fact that government employees have the traditional defined benefit plan. It guarantees retirees 60% to 70% of the employee’s salary in retirement. Plus some plans included very generous medical coverage and are indexed to inflation. Although, the employee is required to contribute to the plan, the government (the employer) has to match the contribution. What happens if the pension plan doesn’t have enough money and becomes underfund? The government has to make up the short fall!!
Yes, the money comes from taxpayer’s pockets, yours and mine!
The financial crisis has added more strain to an already fragile system. Many public service pension plans are struggling to meet their financial obligations to retirees, especially since the crisis put huge burdens of extra debt to federal, provincial and municipal budgets.
The average Canadian is expected to save 18% of their income to accumulate a nest egg that will provide adequate income to replace 60% of their working income. Government employees are required to contribute a lot less to their pension plans. Plus they enjoy the following advantages:
- Lower management fees
- Better quality investment managers
- Diverse investment options to reduce risk
- The ability to invest in a variety of assets (sport teams, toll roads, shopping malls)
- The capability to invest in startup companies before the general public
- Able to buy large stakes in public companies and influence management
- Government employees’ require no investment knowledge or make any investment decisions
- Pension income is guaranteed by taxpayer’s dollars for life
Possible Reforms to the Pension System
- Increase contributions by government employees into the pension plan
- Increase eligibility age for CPP from 60 to 65
- No cost of living increases when pension plan is under funded
- Reduce benefits when pension plan is underfund for more than 3 years
- Nearly every developed country in the world has already raised, or is in the process of raising, its public pension retirement age to 67 or 68
It is simply not fair that government employees are enjoying a deluxe standard of retirement living on the backs of ordinary Canadian tax payers. Why should we have to pay more taxes, reducing our ability to save for our retirement?
It is time to put pressure on our elected officials to put fairness into the Canadian pension system.