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All-Out War on Pensions Brewing in Canada?
Submitted by Leo Kolivakis, publisher of Pension Pulse.
A follow-up to yesterday's comment on the $58 billion debt time bomb. On Tuesday, Kathryn May of the Ottawa Citizen reports federal PS unions gird for battle over pensions:
OTTAWA — Canada’s 18 federal unions are meeting in Ottawa for two days starting today to develop a united front against what they believe is the Harper government’s gathering assault on the public service.
Facing one of the largest deficits in Canadian history, union leaders are braced for Finance Minister Jim Flaherty to turn to the public service to balance his books.
One of the major concerns is persistent rumblings about cuts to the public service’s generous pensions and benefits.
“We don’t know where they will be coming at us … but we want to have common footing, so it in our best interest have common positions we can take,” said John Gordon, president of the Public Service Alliance of Canada.
Gordon says the Conservatives have long grumbled about public service pensions back to Prime Minister Stephen Harper’s days at the National Citizen’s Coalition. The government has said it won’t cut transfers to the provinces or raise taxes, but will rely on economic growth and government spending cuts to eliminate the deficit.
“This isn’t new, but given the economy and what’s happened in the private sector, everyone has turned their sights on the provincial and federal plans. They will all come under the microscope,” Gordon said.
Flaherty has said the “handsome arrangements” of all public servants came up at a recent federal-provincial meeting in Whitehorse on pension reform.
But union leaders say the government should be prepared for an all-out war with its employees if it tampers with their defined benefit pension plan or tries to convert it to a defined contribution plan as has happened in Britain.
Ron Cochrane, co-chair of the National Joint Council, which represents public service management and unions, said “nothing would galvanize even the most apathetic public servant like touching their pension.”
“When you attack people’s retirement savings, you are asking for the fight of your life and I think it would be a most unwise thing for any political party to do. And if they did it to public servants, they would have to do it to the military and RCMP, and do they really want to annoy them?” said Cochrane.
And the unions will be the first to pounce on MPs, judges and deputy ministers whose pensions are even richer than those of the rest of the public service.
The most talked about solution for the government to reduce the pension costs of its employees is to make public servants — who now make about 32 per cent of the contributions to the plan — pick up half the share of the cost.
Federal employees paid $1.2 billion in contributions into the plan in 2007-2008 while the government kicked in $2.6 billion.
The federal government has long contributed more to the pension plan than public servants, but that gap has narrowed over the years. By 2013, the government will kick in about 60 per cent of the contributions while public servants pay about 40 per cent.
Contributions to public service pension plans are shared 50-50 in Ontario, Quebec and Alberta so many argue there’s no reason federal workers can’t fully pay their way.
The federal plan’s early retirement provision is another rumoured target. This allows public servants to retire with a full pension at 55 as long as they have served 30 years.
The government has also explored the idea of phased retirement, allowing bureaucrats to work and collect their pensions. Unions have strongly opposed this unless the option was open to all workers and not just those chosen by management.
Gary Corbett, president of the Professional Institute of the Public Service of Canada, said the pressure to take aim at federal pensions started with the C.D. Howe Institute, which released a report that has concluded the plans of Canada’s bureaucrats, military and RCMP were going to cost billions more than expected. He said the report is being seized as justification to reduce public sector pensions rather than improving pensions in the private sector.
“The attitude is that public servants should be getting pensions like that rather than making sure everyone in the private sector has a better plan. They would rather level down the good plan rather than make the other ones better.”
Unions say that whenever the economy sags, the private sector complains about the rich salaries, pensions and benefits of public servants.
The bureaucracy is a prime target for cuts because the number of people on payroll grew more than 40 per cent over the last 12 years — with a major hiring spree since the Conservatives took over.
Secure and generous pensions were historically considered key to protecting the public service from corruption. Also, many public servants aren’t as free as private sector workers to invest in the market because of potential conflicts of interest on policy issues they are working on.
I don't buy the argument that generous pensions are the "key to protecting the public service from corruption". But unions are right to be on guard because as George Carlin says at the bottom of my blog, on the American Dream, "they're coming after your retirement money...they want it all back!"
One union representative shared these comments with me:
Thank-you very much for your most recent comments on Ottawa Citizen journalist Kathryn May's article on the recent C.D. Howe Institute report on Federal Public Service Pension Plans. My office had been receiving several telephone calls from Ms. May in advance preparation for the article.
You are, of course, correct that the C.D. Howe Institute is a conservative organization and the sole purpose of this report was to derail the current retirement income debate in Canada into an attack on the Federal Public Service Pension Plans.
Unfortunately, this initiative has been somewhat successful. The C.D. Howe report was released on December 16th, 2009, the day before the Federal-Provincial Finance Ministers meeting in Whitehorse. Miraculously, the report became an agenda item at the meeting and the Provincial Finance Ministers seized the opportunity have Federal Finance Minister Flaherty commit to "addressing" the Federal Public Service Pension Plans as part and parcel of any pension reform package.
As you can see from a further article from Kathryn May in today's Ottawa Citizen, a showdown appears to be brewing between federal public service bargaining agents and the Federal Government over proposed cutbacks to the Federal Public Service Pension Plans. Today's appointment of Stockwell Day as President of the Treasury Board will only intensify the dispute.
Indeed, Prime Minister Harper did shuffle his cabinet on Tuesday, appointing Stockwell Day as President of the Treasury Board:
As Prime Minister Stephen Harper shuffles spots on his year-old cabinet, all eyes are being cast on Okanagan Coquihalla MP Stockwell Day.
Day moves from his international trade post to the Treasury Board where he is to play a critical role in leading the government’s effort to curb spending and hold off the growing deficit.
“As we prepare for the return of balanced budgets once the economy has recovered, it will be essential for government to live within its means,” said Harper in a statement.
“I am assigning this task to Minister Day, one of the most senior members of the cabinet and a former provincial treasurer who has distinguished himself in every portfolio he has held.”
Get ready for an all-out war on pensions. One piece of advice to Minister Day: get your hands on the report I wrote for the Treasury Board on the governance of the PS pension plan back in the summer of 2007. It's not just about cutting pension benefits, you need to significantly bolster the governance of these plans if you're going to deliver cost effective, well managed pensions over the long-run (feel free to contact me for a briefing on pension governance gone awry).
And to the unions, my advice is to be prepared to compromise on some issues. We are going through an era of fiscal deficits which will take an enormous toll on public finances. The private sector is reeling and you simply can't ignore what is going on outside the public sector. All over the world, governments are raising the retirement age and pension contributions, cutting benefits and raising taxes to meet ever growing demands of their public pension plans.
Canada will not escape this tsunami of pension reform. All stakeholders, including the government of Canada, unions and taxpayers, need to compromise to sustain the long-term health of federal public pension plans. All-out war will do nothing but further weaken them.
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There's a movement to radically change California government, by getting rid of career politicians and chopping their salaries in half. A group known as Citizens for California Reform wants to make the California legislature a part time time job, just like it was until 1966.
www.onlineuniversalwork.com
Leo you are too optimistic and too nice a guy. The problem is so so bad something serious has to be done. Dont expect the unions to get the math right. So what is fair. Well the best is to simply convert to defined contribution which companies such as Bayer and Transcanada Pipelines have done. Well over my dead body say the unions. So then give the unions plan B as a choice. Plan B says, Governments will no longer run pensions or be responsible for underfunding. Give the money in the plans to the unions and let them figure it out .
And what about those poor public employees. They will have to save more and not expect their pension to cover their every desire after they retire.
In a previous note I stated this decade will be one of a war between the unions representing public employees and us.
It will be quite a battle.
Signed: Pasquale from Ontario.
Pasquale, I am afraid you are right, it sure is shaping out that way.
And just how did the government "prop up teachers during the financial crisis" (which we are still in by the way!) ?
some of the comments here are absolutely ridiculous!
The Ontario Teachers' Pension Plan has been receiving bail-outs in regard to their Unfunded Liabilities. Not as a result of the 2008 Credit Crunch, but because of the inadequate contributions. Besides the Employer and Employee contributions each contributing 50%, the Taxpayer has had to bail out their Unfunded Liabilities for several years in ever increasing amounts. For 2004 it was $609 Million, for 2005 it was $740 Million, for 2006 it was $797 Million, for 2007 it was $809 Million and for 2008, it was $1.1 Billion. I suspect that the other Public Sector Plans in Ontario (maybe not HOOPP) and in the other provinces (as well as in the Federal Government) have been doing likewise.
Speaking as a self employed person, who worked for a provincial government for many years, continue to have many friends within the organization, as well as an ex-wife, a sister-in-law, and many friends who are teachers, I can speak with some balance on where the bad feelings stem from.
To your point, the Ontario Teachers PP (touted as being one of the best pension plans around), was underfunded going into the economic downturn. This poor performance follows a couple of decades of incredible gains. The teacher unions huffed and puffed at the suggestion that the teachers should have to make up for the losses. In the end everyone comprimised. I forget the details. There was a lot of bickering within the ranks. Now imagine the losses in a protracted period of economic malaise or a complete meltdown? You can be sure the government will be called in to smooth out these losses. Teachers have a powerful voice as demonstrated by their endless strikes and pay raises that raise the ire of everyone! Don't tell me they get paid a modest sum. My ex was bringing in $80000 for nine months of work. Summers off of course.
Some government positions make less than private sector jobs but that is not across the board. Besides many of them prefer the stability of a government job and that's the trade off. And believe it or not, once you get talking to them, they will be the first to bitch about all the deadwood within the organization.
It's easy to make sweeping generalizations both ways. Reality is more complex than that. What many of us express here is the frustration that if we are forced into paying for a pension Ponzi, then at least acknowledge that in poor economic times we all have to take the hit and the civil servants should not be immune to this.
Winisk,
My stepfather was a Minister in the Quebec government. I know he will retire with a cushy pension. I used to bug him all the time. But the truth is he got elected five consecutive terms in the same riding. Politicians take enormous personal risk and sacrifice their personal lives. I can live with paying them nice pensions (after a full term). As far as other civil servants, the majority get paid fairly, but not more than the private sector. Only after you factor in their benefits and pensions, do they come out way ahead. That I grant you.
Agreed. I ignore dumb comments castigating public servants, teachers, police officers, firemen, or other public sector workers. They work hard and do not get paid anywhere near as well as private sector workers. They deserve to retire in dignity and security. Hell, we all do, but the problem is that the system is broken and politicians and unions need to compromise to ensure that these pension plans will fulfill their promises.
Sorry Leo, but absent massive tax increases and truly huge increases in employee contributions, these public plans will become insolvent. It's just the math. And they ARE manifestly coddled, overpaid, and underworked. Risk-taking is a fact of economic life, something that all of us in the private sector deal with on a daily basis...they should too!
Leo;
This is off topic but WTF happened to TSL ?
TSL split 2 for 1, and solars sold off after Germany announced 15% subsidy cuts (less than the expected 17% but still significant). I am using this weakness to buy more solars, right in time for RRSP season. I buy on weakness and just forget about them.
As the only real taxpayer left in Canada I can assure you I have rallied my troops and we are one in our fight against the common enemy. I can feel the vibe of our force and am very confident that I, lonely taxpayer, will overcome.
Everyone in Canada since everyone works for the government in one form or another.
Just so you know i have plan B which is commit hari kari.
You are all screwed if I do.
What these dumb dumbs don't get it is someone has to create the wealth that they can suck dry? No wealth no future.
Just food for thought.
OK everyone sing |I SHALL OVERCOME" I SHALL OVERCOME!!"
NO PASSERAN NO PASSERAN
It appears to be a Canadian requires you believe three things:
1. money grows on trees
2. there is a free lunch
3. you CAN get something for nothing.
Unfortunately the Canadian virus is alive and well in the US as well.
60%? 50%? 10%?
Look, as a former and probably future taxpayer in Canada, I have a philosophical problem with contributing anything at all to employees' pensions. These people are WELL-PAID. Very well-paid already. They are NOT "stakeholders": they are merely hired help. And they should be saving and investing for their OWN pensions.
Neither Stockwell Day, the Harper government or the C.D. Howe Institute go far enough. If they don't cut and slash SAVAGELY, and soon, longer-term I fear for unemployment, for the Canadian dollar and for young people...
The vast majority of the "public workers" are P-A-R-A-S-I-T-E-S, as in "performing no useful function". Take, for instance, any department of motor vehicles. They create a tax on people who drive, by "licensing" their cars (why does a car need to be "licensed"? And no, "that's the way it has always been" is not a satisfactory answer) and other things, and then spend the money paying some drone to fill out the paperwork to do the licensing. Self-supporting drone employment. Not necessary.
To government parasites everywhere: STOP STEALING OUR MONEY, OR THE OUTCOME WILL BE EXTREMELY UNSATISFACTORY TO YOU. (see, eg., "French Revolution", and "guillotine").
Let me ask your question using different words: What social value does it serve to be able to determine who owns and operates a vehicle, and whether that person is legally competent to do so? Cars need to be registered for several reasons, just as drivers need to be licensed for several reasons, and most of the reasons are good ones relating to public safety. I recognise that in your tax-free libertarian Utopia, there will be no more crime, no more need to establish your identification, and people who are no longer competent to drive will voluntarily surrender their vehicles; but out here in messy reality, we need some agency to ensure that our roads are safe.
Ignore the Union threats and all their barking. Cut public sector services, jobs and Pensions!!!The time has come!!!
I would add that Canada’s housing bubble has yet to pop. A CMHC bailout (equivalent to Fannie/Freddie) would likely be a disaster for the loonie.
Those who think the loonie will be something of a safe haven from a sinking US dollar may well end up very disappointed.
Good comments Leo. Very sensible. Unions must realize that maintaining the generous PS pensions will come at the expense of their private sector neighbours and friends. From our pocket to theirs. Simple as that.
I got into this with a guy who works for the provincial government last summer. I was carrying on about the sad state of affairs and he sat in his chair, comfortable as a pig in shit, expressing that he has no retirement worries because of his pension. "But what if it's investments don't perform? What if there is another stock market crash? Why should you be protected at my expense?" I asked him rather forcefully. He had no answer. They don't see it in those terms.
First of all I do not agree with a lot of what you write Leo from your perch in the land of eternal optimism however I am 100% behind your public sector pension reform position. Surely the unions would not dare going to war over raising the employee contributiion to match Ontario, Quebec or Alberta? I especially like the idea of these pension fatcats working for their pension after age 55 or whenever they can legally begin collecting (although I have some doubts about the productivity of these individuals after thirty or more years of ingrained entitlement). I don't like the Conservative government one iota however pension reform along these lines is something I could actually support them on. And Winisk, insult will be truly added to injury when these vacuum inhabiting workers suffer another devastation of pension principal in the pending downdraft. I for one will shed not a tear.
Glad we can agree on some things. :)
Leo: Great post as the subject of pensions scares me shitless. I laughed when I received my notice from Revenue Canada a couple of weeks ago informing me of how much I can now contribute to my RRSP to make up for missed or short contributions in years past. How the fuck am I supposed to ever find the $$ to do so when I am constantly bombarded with new taxes from the feds, the province and the city? To say nothing of the pigs who run the utilities who are also always lifting their charges by 2, 3% a year...Cable TV, NatGas, Water etc. My wages don't increase by vig these thieves charge.
To all I say: Get the fuck out of my pocket and let me get on with my life!
It's about time they cut back on this sector of the economy. They get paid ridiculous money when you factor in the pension. Many retire with full pension and then go back to work on contract for the gov't. These unions are, as usual, delusional and completely selfish if they think they can sit and collect these bizarre benefits at the expense of the majority of tax payers who have no pension, or who have meager pensions and also pay well over 50 % of their incomes in taxes at different levels of gov't to support the Cadiallac benefits of the civil service. That is wrong. Time to bring everything into balance. Cut back on this sector big time.
JO
It is about time. I don't have the luxury of these cadillac pension plans but have always contributed to my personal RRSP. When it took a hit during the financial crisis the government didn't come along and give it a boost like they did for teachers, auto workers or guaranteed governmment plans. Why should my tax dollars constantly go to support these workers? They need to make a massive cut to these plans.
The private sector now only exists to serve the public sector.
YA - so what - the beast wants to suck our 401Ks dry ... trillions worth!!
Pensions in most countries have about five years and they'll all be confiscated nor converted to pulic debt---Argentina was the canary in the coalmine.
The solar stocks will save them.
http://www.youtube.com/watch?v=9kBTAGiGHlY&feature=related
Yo Leo!!
Thanks for keeping us posted.
Not all Canuk provinces have abundant wellhead taxes (as we call 'em down here in Texas).
It's going to be fun to see the conflict between public employees and the private sector over taxes to fund these pensions.
Looks like Canuk land is getting an early start over its southern neighbor!! Eh?
Certainly we should not allow government to borrow from our pension funds. But, that being said...
I'd like to see public employees be made to endure the same retirement challenges as the private sector. No special early retirement age, no special medical benefits, and why should they get a proportionately larger monthly pension check than those of us on S.S.?
It is a clear case of favortism and the sooner it ends, the sooner government employees will feel the need to cut the cost of "big government"-(taxes).
ALL GOVERNMENT EMPLOYEES, INCLUDING CONGRESS, STATE LEGISLATORS, GOVERNORS, TEACHERS, JANITORS, DOG-CATCHER, ETC., ETC.
And, if you look at the math, those pensions are impossible to fulfill as more and more gov. employees retire!!
In the USA, only 2 states are not running yearly budget deficits. Many are over 20% in the red and several are more than 40% underwater.
Why don't we all start being financially responsible for ourselves and our families and stop depending on someone else to fund our retirements and benefits? Like most of the private sector does already!!
taxpayers dont need to be sacrifical lambs at this fun-fest.........they can starve the beast.