Canada’s Pension Predicament
Dan Kelly column
Financial Post Small Business
Publication date: February 6, 2012
Canada's Pension Predicament
When CFIB launched its Pension Tension campaign last summer, we figured we were in for an uphill battle. While the proposals to hike Canada Pension Plan (CPP) premiums had made the rounds, virtually no one was talking about the sustainability of our public sector pension system or the imbalance between the savings options for those paying taxes and those working for government. Prior to our campaign, the debate largely focused on forcing Canada's small business owners to open up their secret basements filled with cash and ante up more CPP on behalf of employees.
What a difference a few months make.
Today, pensions - in their many forms - appear to be the hot topic in Ottawa. Rumours are flying and include everything from government making significant changes to the gold-plated public sector pension scheme, to platinum-plated MP pensions, to Canada's Old Age Security (OAS) system. On top of this, very good legislation is being debated to create a low-cost pooled pension plan for small business owners, employees and the self-employed.
CFIB is very pleased to hear reports that government is considering two small, but important changes to the pension plan for civil servants. This is extremely important as, depending on whose report you read, the main government worker pension plan is short between $150 and $230 billion. The rumoured changes include raising employee contributions to 50% and phasing out early retirement incentives in the plan.
This possibility has already provoked government union bosses to light their hair on fire. Imagine the nerve of taxpayers to expect that government workers pay half of the cost of one of the best pension plans in the country (plans that most Canadians could only dream of having themselves). Can you believe the audacity of us unwashed private sector workers suggesting that government workers retire at approximately the same age as the rest of us? After all, government unions are still reeling as they were asked to give up giant severance packages when they quit or retire. Never mind that taxpayers actually paid them an extra $1.3 billion for the permission to end this practice. That doesn't count.
Unions report that any change to government pension plans would be unfair as pensions are simply deferred compensation and this accounts for the lower rate of pay for civil servants. They say that they don't get the giant bonuses provided by private sector employers and that the pensions help government compete for talent. While this may have been true at some point in history (and may still be true in a few specific professions), the problem is that the vast majority of government employees earn significantly more than the private sector in wages alone. In fact, at the federal level, government workers earn 17% more than similar occupations in the private sector. When all benefits and shorter working hours are considered, this gap rises to 42% in favour of government staff.
Unions reject this analysis of Census data and put forward their own data instead. The funny thing is that depending on the day, government unions report that civil servants earn more than, the same as, or less than private sector workers. Most often, unions report it is through collective bargaining they are able to achieve better pay, benefits and job security than non-unionized, private sector employers. In response to CFIB's Wage Watch report, CUPE recently produced a report that civil servants earn, on average, almost exactly the same as the private sector, except for female civil servants, who do better in government. Of course, right now, government unions say they have to have wonderful pensions to compensate for their lower rates of pay than the private sector. I sure wish they'd just pick one line and stick with it.
Of course, Canadians don't have to look beyond their neighbourhood to find someone who has worked for government, retired in their 50s, has a beautiful summer cottage, spends winters in Florida with a fantastic pension with full benefits. Does this mean that the civil servant has done something wrong? Not at all.
But as government considers asking all of us to delay collecting OAS by staying in the workforce to 67, shouldn't we be able to ask civil servants to work until 65? Wouldn't it be fair to ask government workers to pay half the cost of their pensions given most private sector workers have no plan what-so-ever beyond small contributions to RRSPs or TFSAs?
It is good news indeed that public sector pensions appear to be on the radar of the federal government. In recent meetings with Prime Minister Harper, Finance Minister Flaherty and Treasury Board President Clement, CFIB made clear that our priorities for action start with fixing the ridiculously generous MP pension plan to give our politicians legitimacy to address the extremely generous public sector pension plan.
We feel that government needs to start there before considering any changes whatsoever to OAS benefits. Fair is fair.
Dan Kelly is senior vice president of legislative affairs for the Canadian Federation of Independent Business (CFIB), which represents the interests of small- and medium-sized business and lobbies on behalf of its 108,000 members at the federal, provincial and municipal levels. Follow Dan on Twitter @CFIB.
