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Canada kicks public sector pension reform down the road

Canada kicks public sector pension reform down the road

The 2013 budget of Minister Flaherty has flunked the issue of public sector pensions. He makes a clear commitment to making the system affordable in the future but then kicks the can down the road by announcing vague consultations that will take place at some unspecified time in ‘the coming months’.

The lack of clarity in the budget on the sheer cost of public sector pension liabilities over the next decade and the extent to which Canadians will be taxed or will accrue debt in order to meet them is not spelled out. This is because any notion of fairness would be laughed out of court if he were to make it clear to Canadians just how much the private sector is going to have to pay in order to fund public sector pension payments.

Reform is urgently needed but is fobbed off because of the difficulty of taking on the vested interests that are mighty in defence of the current system – the public sector unions in particular.

Instead, the private sector has received an amount of tinkering around with the distressed pension workout scheme that will make it easier for some defined benefit plans to keep going in defiance of the reality that in a world of shrinking workforces and global competition, companies should not be taking on the kind of liabilities that are associated with this form of pension scheme.

It appears that the politicians and officials in the finance ministry are keen to keep private sector defined benefit schemes in existence as the stark reality of how the public sector is feathering its own nest at the expense of the private sector will be starkly revealed if the private sector moves across to defined contribution schemes completely.

Meanwhile, the Minister welcomed the tabling of British Columbia’s PRPP legislation but limits its own future role to ‘encouraging’ other provinces to follow suit. PRPPs are a key way to make affordable pension saving available to those in smaller firms. Without access to a pooled plan, only high cost personal pension plans are available.

The Minister also avoided any move towards compulsory pension saving. This is a bit odd as all taxpayers have a compulsion to pay for the pension savings of the public sector workers. Surely it would be a much easier sell to make them pay for their own pensions, rather than for someone else’s pension?

All told, the 2013 budget does little in the area of pensions and ducks the difficult questions. There is not much in this to increase the likelihood of all Canadians having a decent level of income in retirement. It appears that for Minister Flaherty, the rewards for introducing fairness into the system is more than outweighed by the effort of tackling the problem. Oh for a statesman with long-term vision!

Tom Murray

Twitter: @TomMurrayDublin or @Exaxe

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