Pension plans boost ­the provincial economy

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On March 4, The Telegram published an article which began by announcing that “An attack on public sector pension plans is occurring in this country and has spread to our province.”

On March 28, I attended a St. John’s Board of Trade luncheon which featured a speaker launching such an attack. The speaker and, apparently, the Board of Trade, advocate for the elimination of defined benefit pension plans, arguing that public sector pensions should be converted into defined contribution, RRSP-type plans.

The existence of such extreme right-wing positions is not surprising. What is surprising, and disappointing, is the support demonstrated by the Board of Trade for a perspective and presentation filled with misinformation, half-truths, inaccuracy and a lack of balance. What is even more alarming is the Board of Trade’s choice to completely ignore the drastic and negative implications for the economy if public sector and defined benefit pension plans were eliminated.

There are important facts about pensions that should not be ignored when considering what is best for the economy:

    ‰ Pensioners pay taxes — to the tune of a $14 billion to $16 billion annual contribution to the Canadian government coffers.

    ‰ Pensioners contribute $56 billion to $63 billion annually in spending to the Canadian economy. A reduction in pensioners’ income would be most keenly felt and have the greatest impact on a small-market economy with a more elderly population base such as that which exists in Newfoundland and Labrador.

    ‰ More than 50 per cent of seniors without pensions in Newfoundland and Labrador rely on taxpayer-funded government financial assistance.  By comparison, less than five per cent of the province’s elderly who have defined benefit pensions require such support.

    ‰ The teachers’ and public sector pension plan funds in Newfoundland and Labrador had an investment return of 22.28 per cent last year (an 11.56 per cent five-year annual return), which resulted in a $1-billion increase in the funds even after pensions were paid out.

    ‰ Pension plans are designed in such a manner that, for every $1 paid out in pension, $0.70 should come from investments, $0.15 from employee premiums, and only $0.15 from the employer’s contributions;

    ‰ Pensions provide for adequate income in retirement years, which means a lower rate of poverty amongst the elderly, less reliance on government-funded financial assistance, and a strong deferred tax base for government.

    ‰ Public sector pension plans, including the CPP, are highly regulated with efficient, low-cost operations and lower investment fees than RRSP arrangements, which put more money in the hands of retirees.

    ‰ Pension plan funds are invested in Canadian markets and communities, providing long-term capital for investment in infrastructure, bonds, real estate and private equity.

I have great respect for the business community and expect that business people will make decisions on the basis of factual analysis. However, I also appreciate that profit is the primary motivator for business.

I can therefore understand when groups that represent the interests of business speak against things which have an impact on profitability in the short term, despite the fact that those same programs and initiatives are good for employees and society in the long term.

Mandatory pension plans which require employer contribution, enhanced CPP benefits through increased premiums and increases in the minimum wage (all of which enable us ordinary Canadian citizens to live and retire with a reasonable standard of living and minimal reliance on government subsidized assistance)  are all opposed by the Board of Trade and Newfoundland and Labrador Employers’ Council.

Pensions and retirement income are very complicated affairs. Government and the groups representing pension plan members rely on the expertise of pension experts, actuaries and lawyers to advise and assist them in discussions aimed at solving the pension problem and ensuring the long-term sustainability of provincial public sector pension plans.

The government of Newfoundland and Labrador recognizes the value and importance of public sector pension plans for both its employees and the future economy of this province. Premier Tom Marshall, on behalf of the government of Newfoundland and Labrador has publicly expressed commitment to its employees and the sustainability of defined benefit plans.

In contrast, Sharon Horan, chair of the Board of Trade, and Richard Alexander of the Employers’ Council continue to attack public sector pension plans under the guise of representing the best interests of “taxpayers.”

Make no mistake — neither of these individuals nor the organizations they speak for represent the taxpayers of this province. They represent the interests of business owners and employers, and everyone should note this difference.

Horan’s advice on public sector pensions is equivalent, and about as sound, as me giving advice on orthotics.

I’ll leave the orthotics advice to Horan and she, in turn, should leave the advice on public sector pensions to the parties involved — government and the public sector employees who are members of these plans.  

I respectfully propose that the Board of Trade and the Employers’ Council should cease and desist in their ill-informed and misguided attack on public sector pension plans and on the retirees who spend their hard-earned pension dollars in the businesses owned and operated by the people the Board of Trade and Employers’ Council are supposed to represent.

Rather than promoting “pension envy,” I suggest they concentrate their efforts on addressing the real problem — helping their own employees achieve adequate retirement savings, pension income, or CPP benefits so that they are able to afford a reasonable standard of living in retirement.  

Don Ash is the executive director

of the Newfoundland and Labrador

Teachers’ Association.

He writes from St. John’s.

Organizations: Board of Trade and Newfoundland and Labrador Employers

Geographic location: Newfoundland and Labrador

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Comments

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Recent comments

  • HANK
    April 19, 2014 - 02:18

    Workers Comp is using workers canada pension benefits to reduce their liabilities to the worker, What a worker receives From CPP is deducted from what WCC pays the injured worker, At 65 their WCC benefits ends! and the worker receives less benefits from their CPP because it was not paid into, instead it was used to reduce the Benefits that were supposed to be paid by Workers Com. NO! I Do Not Think Workers Comp Employes would be effected by this action!

  • jack ellefson
    April 17, 2014 - 00:08

    Civil servant pension plans are in financial trouble across Canada, because benefits are too large and contributions are too small. Government employees can contribute to an RRSP because their personal annual pension contributions are less than half of the funding cost of their expected future pension.

  • jack ellefson
    April 16, 2014 - 23:55

    Pension Solutions for ordinary Canadians. 1. Please don’t mess with CPP. Public service union leaders are calling for larger CPP contributions and pension payments. Ergo, there must be a benefit for the public service members in larger bridging payments or earlier retirement benefits or some other perk. Business leaders claim increased CPP contributions will hurt their bottom line and will reduce their hiring capacity. CPP management and government officials have stated that CPP, as is, is sustainable for the foreseeable future. However, I would like to recommend exclusion of all civil servants from the Canada Pension Plan. Their annual CPP pension contributions should be paid into their respective defined benefit pension plans to assure sustainability. By media reports most of the government defined benefit plans are in deficit and require funding. Exclusion means no employee contributions to CPP and no government employer contribution to CPP. The reason is simple. Why should one group of Canadians be entitled to two defined benefit pensions, government guaranteed with annual cost of living increases. Their present annual employee contributions to CPP should be redirected to the defined benefit pension plan they are presently enrolled, in order to pay off the unfunded pension liability of the plan. Present civil servants would be entitled to receive CPP, upon retirement, based upon their contributions to CPP, or years of service before plan cessation. It would be a slap in the face for this taxpayer, to increase CPP benefits for Canada’s civil servants presently enrolled in the most generous employer defined benefit pension plans in the world 2. Mess with OAS. Old Age Security and supplements amounts to around $15k per year for a single person and $30K for a married couple. These are the poorest segment of Canadian retirees. Payments could be progressively increased and their cost should be funded with progressive but total elimination of OAS to seniors earning say two times the benefit paid to those needing OAS as their only source of income. Using present OAS pension amounts, Seniors earning +$60K would not qualify for OAS by this suggestion. 3. Tweak RRSPs. Canadians do not like RRSPs, as I learned from my working experience as an Investment Advisor. The answer is simple, the lifetime tax deduction is limited but the withdrawals on retirement at highest marginal tax rates, means windfall tax revenues for governments. There are many ways to enhance RRSPs including; return of lifetime contributed capital without taxation, fixed rate of taxation on withdrawals at rates lower than an individuals marginal ate. My spouse and I (in our seventies) as lifetime RRSP contributors are each paying about $30,000/year tax on withdrawals and if we both died in the same year, the tax windfall would amount to $800K. Our individual life time RRSP contributions were under $300k and the lifetime tax savings were about $110K. - -The best income tax deduction investment the government ever made!! Finally, consider subsidizing RRSP contributions for those Canadians not enrolled in defined benefit pension plans. RESPs and RDSPs are subsidized. A $1000 government subsidy on top of a minimum $5000 annual contribution would likely cause RRSP savings to double in Canada based on the decade of experience subsidizing RESPs. In conclusion, I would be pleased to answer your questions or expand upon the suggestions contained in this letter. Jack Ellefson-- Retired IA, F.C.S.I., and P.Eng(life member). 27 Hawkside Close NW. Calgary.AB

  • Marshall Art
    April 15, 2014 - 11:09

    Don Ash's article is perhaps the best one I've read regarding the ulterior motives of those who attack public sector pension plans. It should be circulated to every province in Canada. To anyone who thinks that the Board of Trade and the Employers Council represent the best interests of the taxpayers of this Province, give your head a shake. They don't care squat about taxpayers, they care about business owners and employers. When you're being told that something is in your best interests, it's always wise to consider the source.

  • NOW THIS CRAZY
    April 15, 2014 - 10:42

    How do their pension boost the provincial economy, when so many working poor has to go with out on their behalf. Are you saying union workers can eat, and the working poor can go hungry, because of their greed.

  • edwartt
    April 15, 2014 - 05:34

    Very true . They should be worried about their employees pensions and not taking away others.