MTAG echoes comments by Guy Giorno, Bob Plamondon & Prof Ian Lee for Federal Government Leadership on Pension Reform

 

Prior to our Annual March 8th Government Innovation Conference, we made the following statements and asked the following questions: Canada, provinces, territories and cities owe about $1.1 trillion US. The Federal Government has an opportunity to lead on the issue of public sector pension reform and set the tone for provincial and municipal governments to follow suite.

 

  1. Should the unionized public sector pension eligibility age be raised before increasing the age of eligibility for non-unionized OAS (Old Age Security) recipients?
  2. Should Ottawa follow the lead of the EDC (Export Development Canada) and move to defined contribution plans for new hires?
  3. In order to avoid the “Ontario Pit fall” of MPP pension reform without public service pension reform, can public sector pension reform be addressed in the same legislation as MP Pensions?

 

Professeur Ian Lee: “baby boomers are like a proverbial band of locusts about to retire and eat everything in sight”

Pensions are not guarantees, today they simply an unsustainable promise. The proposed new OAS eligibility age of 67 should be the standard for all other public pension recipients. The Federal Government’s pension liability is 4.5% of GDP or about 230 billion dollars. While this is not as bad as Greece, Italy, Spain which is 15% of GDP, it is a major source of concern. The unfunded pension liability for the Eurozone is about 33 trillion euros or 3 American GDPs. The unfunded pension liability for the USA is about 66 trillion dollars. In 1970 the average life span was 70; today it has increased by about 15 years. In Canada today, OAS is 2% of GDP at $33billlion dollars in 20 years it will become $100 billion.

 

Baby boomers will not only consume OAS but healthcare which is now 12% of GDP, but in 20 years it will become 20% of GDP. Since the economy is growing at about 2% per year and health care at 6% per year, the math does not work and there will come a day of reckoning.

 

Bob Plamondon “pensions are a Ponzi scheme, you are the victims, you are also the antidote”

In Montreal pension liabilities rose 500% in 6 years. The shortfall for OMERS (Ontario Municipal Employees Retirement System) is $9 billion dollars; it went up by $2.8 billion just last year alone.

 

Canada is not Greece or Italy but we are facing a financial ticking time bomb, unfunded pension liabilities are the single biggest threat to quality of life and our social programs. This is the same issue that bankrupted GM, more retirees than workers on the payroll. The system as is unfair, unsustainable and punitive. People are living longer, investment returns are worse. This means there would be less for funds available for water, roads and other infrastructure needs.

 

The City of Ottawa OMERS pension contributions increased by 70% from 2004 to 2010 or triple the rate of inflation. As a % of total wages, the pension contribution in Ontario has doubled over the last 6 years. The City of New Brunswick contemplated bankruptcy to address pension payment problem.

 

In Montreal their police officers retire on average at the age of 53 years and collect an annual salary of about $59,000 per year for the rest of their lives. A private sector individual would have to save 1.4 million dollars to achieve a similar fit. A judge with a minimum wage of $281,200 is eligible for a full pension after 15 years of service.

Just like the EDC and RBC, let’s hope the Federal Government will show some leadership in this budget and announce a defined pension contribution plan for new employees. We are fast developing two tiers of Canadians, the public sector with a 30% pension inclusive wage gap and the private sector.

 

Guy Giorno “If we are going to raise the OAS eligibility age, then the public sector should be in the same boat

The OAS eligibility age was picked when life expectancy was 65. They should look at public sector pension reform before dealing with the private sector. The system works best when politicians remember that they are there to serve the public and not the other way around. We removed right to strike for essential services and appointed arbitrators to address labour disputes.

 

There are 4 models:

 

1) A legislated pay freeze is air tight, but after legislation arbitrators often give awards that erase the impact of the law

2) A legislated cap and letting the parties decide as implemented by Bob Ray in the 90s, the social contract led to wasteful and inefficient spending

3) Tell arbitrators they need to reflect the taxpayers’ ability to pay but they would often ignore the criteria or simply pay lip service to it. This is because arbitrators need to be accepted by the union, if you get black listed by the unions, you cannot work.

4) Appoint a 3rd party arms length organization that neither the government nor unions will have a choice on. The former Premier of Ontario Mike Harris, tried this but there was such an uproar, that he backed down.

 

Ade Olumide, President

Municipal Taxpayer Advocacy Group

admin@municipaltaxpayer.com