The CFIB's 'economically illiterate' attack on public pensions

Dear Ms Swift,

What a surprise! Another mean-spirited and economically illiterate attack on the public sector, one in a series from the CFIB, this time an attack on the pension plans of public sector employees.

The CFIB has issued a report that claims there is a widening gap between the public and private sectors when it comes to pension plans, and that the taxpayer is subsidizing the superior public sector plans.

Even though it’s very hard to take this CFIB report seriously, I do feel it is important to set the record straight.

Public sector workers pay half the cost of their pensions

First, and most obviously, the CFIB report deliberately ignores the key point that public sector workers pay half the cost of their pension. Public sector employees, every single pay day, have half the cost of their pension plan deducted from their pay cheques.

Actually, in many cases public sector workers paid more than half the cost, because governments didn’t actually make a real contribution to the plan, just a book-entry contribution. As well, several governments across the country took contribution holidays in the 1990’s when some plans were in a surplus position.

The majority of private sector pension plans, on the other hand, are not half paid for by the employees; instead the employer bears the full cost.

If one was to deduct the amount public sector employees themselves pay for their own retirement, the part of public sector pension plans that the employer pays for would provide a maximum pension of 35% of income at the point of retirement. That’s a maximum, after a full 35 years of service. The overwhelming majority would have a pension of substantially less than that.

An employee earning $50,000 a year would receive a maximum pension of only $17,500 a year, if only the employer’s contribution was used. Most employees don’t reach the maximum, but even for those that do, a $17,500 yearly income is pretty paltry.

Inadequate pensions at a time of massive retirements is economic lunacy

Every serious observer of the current scene knows that Canada is facing an unprecedented retirement wave as baby boomers reach retirement age in record numbers. Even (the CFIB report) acknowledges that.

One estimate is that while some 225,000 Canadians currently retire every year, the figure will climb to 370,000 a year by 2010 and 425,000 annually by 2020. This increased rate of retirement will continue for some 18 years.

By 2011, the number of seniors will have grown to 5.0 million (14.1% of the population). By 2021, the number of seniors will have grown to 6.7 million (representing 18.6% of the population.) At that time, the number of Canadian seniors and children will be roughly equal.

By 2041, when there are 10 million seniors, they will comprise 22.6% of the Canadian population.

The most economically perverse thing we could do when we know we have that many people approaching retirement is to weaken our pension system. That is the single thing we could do that would cause the most economic disruption, that would cause the biggest decrease in consumer spending, that would cause the biggest increase in poverty in our population.

Do all these businesses (the CFIB claims to) have as members understand what damage they will do to their businesses, if we force 22% of the population to exist on subsistence pensions?

Does the CFIB not understand the social cost, and taxpayer cost, if that great a percentage of the population is subjected to poverty level incomes or worse in their elder years?

The Real Pension Crisis in Canada is Lack of Pension Coverage

The CFIB report does acknowledge one key fact: the percentage of workers covered by any kind of pension plan in Canada is dropping, and many corporations are choosing to transfer the pension risk on to their employees by switching to less beneficial defined contribution plans.

The CFIB implies that the solution to this problem is to cut the benefits of the 20% of the workforce that is in the public sector – bring everyone down to the lowest common denominator. It is of course possible to think of another solution – requiring employers, including the members of your own organization, to accept their responsibility for providing a decent pension. Oddly that isn’t part of your report.

Your report misses the point altogether. The debate in Canada must focus on the real pensions crisis. It’s not acceptable for a large segment of corporate Canada to off-load its responsibility onto individual workers, for their financial security in retirement. This ultimately will lead to having more and more working Canadians living in poverty in their retirement years and will place increased pressure on our public pension system – and our public welfare system. A secure, enjoyable retirement should be the right earned by workers for decades of contributions to one’s community and Canada’s economy.

We look forward to your next contribution to the ongoing saga of The CFIB Versus the Public Sector. I’m sure we won’t have too long to wait.

(original signed by)

Larry Brown
Secretary-Treasurer
National Union of Public and General Employees - NUPGE